Yes, taxing things decreases demand
Published 9:37 pm Friday, October 16, 2015
The New York Times has made an important discovery. At least, one writer has. Margot Sanger-Katz has found that taxing something discourages it. “Yes, soda taxes seem to cut soda drinking” is the headline of her Wednesday article in the Times.
“For about a decade now, policymakers and the soda industry have been fighting about the idea of a big soda tax,” Ms. Sanger-Katz wrote. “Proponents say it would fight obesity by reducing consumption of sugary drinks.”
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And now there’s evidence, she wrote.
“In 2013, Mexico passed a tax right out of the public health literature. And now the theoretical debate is becoming more real,” she reported. “Preliminary data from the Mexican government and public health researchers in the United States finds that the tax prompted a substantial increase in prices and a resulting drop in the sales of drinks sweetened with sugar, particularly among the country’s poorest consumers.”
Well of course it works. That’s what taxes do. They discourage an activity. Conversely, subsidizing an activity encourages more of it.
It’s just a shame the New York Times doesn’t see the same logic (and historical evidence and economic principle) applies to other things, like job creation and work.
Here’s the Times on raising the minimum wage: “People are working harder and churning out more goods and services, but there’s no sign of that in their paychecks.”
Therefore, Congress should impose a higher minimum wage on employers, the Times contended.
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“Decades of research, facts and evidence show that increasing the minimum wage is vital to the economic security of tens of millions of Americans, and would be good for the weak economy,” the newspaper wrote.
But a minimum wage above what the market calls for is, in fact, a kind of tax levied by government on job creation. And if you tax something, you get less of it.
That’s what the Congressional Budget Office said in a 2014 report.
“Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects,” the report reads. “Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.”
So yes, taxing works – even when it comes to minimum wage hikes.
How about taxing productivity? That, too, seems to be unclear to the New York Times, which pretty constantly calls for higher taxes on “the wealthy,” though it’s vague about just who that is.
But the evidence is clear – the more you tax production and success, the less you have of it. That happens in several different ways, including relocation (the successful pick up and move to a lower-tax environment); tax evasion (legal and illegal) and a decrease in productivity (people don’t work as hard for benefits they won’t receive).
The principle holds for soft drinks. It holds for smoking. And yes, it even holds for jobs, productivity and success.