Sales Tax on Food to Prevent Obesity?

First an Excerpt from the article, “A sales tax is better at promoting healthy diets than the fat tax and the thin subsidy”:

“We analyze how a sales tax levied on all food products impacts the consump- tion of healthy food, unhealthy food, and obesity. The sales tax can stimulate the consumption of healthy meals by lowering the time costs of food preparation. Moreover, the sales tax lowers obesity under more general conditions than a tax on unhealthy food (fat tax) and a subsidy on healthy food (thin subsidy). We cal- ibrate the model using recent consumption and time use data from the US. The thin subsidy is counterproductive and increases weight. While both the sales tax and the fat tax mitigate obesity, the former imposes a lower excess burden on consumers.“

My Two cents:

If the proposal seeks to offset “bad” foods with a tax, who is determining the definition of “bad” or “good” foods? What is the criterion that would make a food fit into either of these categories? Next, once that is determined, how is the actual tax rate calculated? If the objective is to move consumption away from “bad” foods, and to move it to “good” foods, consumers will simply seek viable substitutes for those “bad” foods. Moreover, if a subsidy is provided, what are the consequences with regards to the economic cost of making “good” foods? The cost will rise, hence the need for a subsidy, and giving people the subsidy will simply encourage them to buy some “good” food, but does it really stop them from eating the “bad”?

Read the study here:

https://onlinelibrary.wiley.com/doi/pdfdirect/10.1002/hec.3987

Tax Loopholes vs Government Subsidies

Introduction

Many individuals confuse the notion of Tax Loopholes and Government Subsidies. Typically, these two are confused in the conversation of “big business” getting special favors from the Government. While it is true that many larger firms rent seek, or lobby, the US Government for subsidies, this does not mean both Tax Loopholes and Government Subsidies are the same.

What is a Subsidy? 

A Subsidy is a direct payment received from the US Government. For example, some farmers receive subsidies from the US Government to operate their operation. Of course, this has adverse consequences on the economy. The subsidy is paid from the US Government. Prior to that, the subsidy is underwritten by the Tax payers. However, the farmers receive the direct benefit of the subsidy. Since the funds are re-distributed from the tax payers, to the farmers, this causes economic havoc in the marketplace. Resources are not allocated to their highest uses, as the folks in Washington DC make the choice on how resources are allocated, not the actors in the marketplace using the price system.

What are Tax Loopholes? 

Tax Loopholes are simply ways, as per the law, for individuals to keep reduce their tax liability. This simply means they are not due the same amount of tax liability, based upon the individual’s use of the tax code. This differs from a Subsidy in the fact that a subsidy is a direct transfer payment, and the use of a Tax Loophole is not a direct transfer. Moreover, use of a Tax loophole is an opportunity of the individual to keep more of his/her personal property. Recall: The US Government’s role is to protect individual liberty and individual property rights. Also, this allows business owners to invest more of their profits back into their operation. Reducing the economic costs allows more firms to enter the marketplace, subsequently, it provides the consumers more choice.

Conclusion

Subsidies do more harm to the economy, in the long run, as compared to Tax Loopholes. Subsides create much more economic havoc, as it can be detailed out in another article. Tax Loopholes, on the other hand, simply allow citizens to keep more of their private property. This makes more sense because individuals are better suited to make choices for their happiness.