Governments around the world tax unhealthy or otherwise harmful goods like cigarettes and alcohol, and many are also thinking about taxing junk food. Governments use different justifications for these taxes, but they are also widely criticized.
Below are two links to recent articles about increases in sin taxes. Read through them both and tell us what you think of such policies, using economic analysis as you go. Try to focus in narrowly on one issue, rather than making broad statements that touch on many issues. Remember to keep your comment to 10 sentences or less!
http://www.usatoday.com/money/perfi/taxes/2009-03-31-cigarettetax_N.htm?POE=click-refer
http://online.wsj.com/article_email/SB125599061198095083-lMyQjAxMDI5NTE1MTkxOTEwWj.html
I believe that sin taxes is only another tax to give the state some more money. Since Fast Food is for some people very addictive and therefore the good is inelastic, the government can charge any tax and the addictive consumer would pay it. This is only when producer gives the tax on to the consumer. In any case, sin taxes can harm the government, when there is an election. People would not like these taxes and the opposition would take the chance and demonstrate against the taxes. Therefore this tax is very debatable because if the opposition would come into power they would release this tax. I believe that if this tax comes, it would not last for long.
ReplyDeleteTaxes are payments from households or firms to the government; sin taxes are a type of tax that is put on unhealthy goods such as cigarettes or alcohol. The point I want to focus mainly is the responsiveness of consumers, which can be seen as a price-inelastic demand, meaning that the change in price of the particular good will lead to proportionally smaller changes in the quantity demanded. People are addictive to smoking, so even if sin-taxes, which increased “from 4 cent to $1.01 a pack”, are established the majority of the people will still continue buying cigarettes due to the price-inelasticity: "This is going to hit her hard," Torres said of his disabled aunt, 64, a heavy smoker who won't quit.” However, there might be a small quantity demand change, especially “more lower-income people than higher-income people” might quit, since they are not going to be willing and able paying so much money for something so unhealthy. “In the past, a 10% price increase reduced cigarette consumption about 4%”, but the question is: How were these statistics calculated? Was it taken in consideration that addictive smokers might haven bought their packs through the access of Internet, travelling and maybe even black markets? Anyhow, even if there were less than “1 million of the 45 million adult smokers” who would quit or maybe even just smoke less ("I'm going to quit," said Will Hues, 27, smoking a cigarette outside the store. He said prices have gone up so much that "you're out of your mind to pay it."), this already changed a life and maybe made the few people who have stopped smoking and therefore also the community around that person (who were affected by passive smoking) at least a bit healthier.
ReplyDeleteI think the governmental policy of enforcing sin taxes on goods won't be convenient for the producers. Since "one in four smokers live at or below the poverty line", the demand for cigarettes would decrease dramatically once the sin taxes are implemented. This means that demand would be price elastic, as the consumers would be highly responsive to the price changes. One consumer said, "prices have gone up so much that 'you're out of your mind to pay it.'" Also, since "Poland is set to lift its excise tax on cigarettes by 2.6% to 228.80 zlotys ($81) per 1,000 units as of January", this would affect people that are below the poverty line. Therefore, demand would be price elastic, as consumers would rather quit smoking/drinking since the proportion of their incomes spent on the goods would be too high. Hence demand would fall from D1 to D2, and supply would fall from S1 to S2; and the price of cigarettes would increase from P1 to P2 and the quantity demanded and supplied of cigarettes would decrease from Q1 to Q2. This means that the firms would be losing a lot of their revenue as the quantity demanded and supplied decreases by a significant amount. This means that firms would use fewer resources to make cigarettes and beer, so workers in the firms would lose their jobs, which would increase unemployment rates. Furthermore, producers might turn into selling their goods at the black market or other illegal measures as mentioned in the article. Therefore, increasing the sin taxes might create bigger problems for the gov. that may be extremely arduous to handle in the future.
ReplyDelete-Jung Hyun Kim-
Harmful addictives, such as acohol, cigarettes and junk food are easy tax incomes for the government, as the demand for them are generally inelastic, meaning the price can increase, and the demand will still stay the same - people will continue to consume heavily. These price increases are the government taxes, which are payments by consumers or firms to the governments. So the government thinks - quick increase in government revenue, raise the tax on something that people are addicted to, like cigarettes! Yes, the policy does work to increase the revenue - at first, in the short run. Firstly the heavy and chain smokers dont mind about the tax or price increase, as long as they smoke their pack a day. However in the long run, it can become pretty pricy to be spending so much on something that is basically killing you. Especially for the poor. In the article it states that "one in four smokers live at or below the poverty line", so the poorer population, which is the majority of smokers will cut back or even quit."I'm going to quit," said Will Hues, 27, smoking a cigarette outside the store. He said prices have gone up so much that "you're out of your mind to pay it." This isnt so bad at all - the government tax is helping people become more healthy and living longer, and improving the health of the population is not something that any government shold be accused of. It wont hit the companies too hard, because they have been experiencing gradual decrease in demand over the last few years anyhow, and the change in demand would not be sudden, because as mentioned before demand is quite inelastic, only in the long term will there be apparent changes for the companies. There are some consequences of enforcing sin taxes, however i think the positive rules out the negative. I think that these policies are very good, because it motivates people to quit the disgusting habit and spend their money, on other more useful things, especially as the whole world economy is currently in a harsh recession.
ReplyDeleteI would like to point out that it is very unlikely that politicians would lower a tax which gives the government easy money, as Alexander has suggested they would. "Opposition" would do all they could to lower the public opinion of the tax, but the people are usually against taxes anyway. Also, though one man in one of the articles said "I'm going to quit," that doesn't mean that the majority will quit. As the article says, "one in four smokers live at or below the poverty line," but the other three quarters of the people don't, so the quantity demanded of goods like cigarettes will still be huge. Julia said, "However in the long run, it can become pretty pricy to be spending so much on something that is basically killing you," but it is already "pricy" for smokers to smoke, yet they still harm their own and others' health by smoking. I would therefore say that because of this addiction, demand is very inelastic, and though the quantity demanded will decrease a little with the tax increase, there will still be a very stable cigarette market, and the government will gain a lot of revenue through the tax. But I don't think that makes the tax beneficial overall, as many people will still waste tons of money smoking instead of making smart economical decisions, some going into debt and the like, and the whole markets of demerit goods therefore weakening the economy. Also, as one of the articles said, "Critics of the increase argue that it will lead to growth in the smuggling that has plagued Bulgaria for years" and the black market will grow. So I think the government should definitely use sin taxes, but also find other ways to get money and lower demand for demerit goods like cigarrettes.
ReplyDeleteIn my opinion, using sin taxes can only efficiently be evaluated, when one asesses the long run. Yes, many smokers such as the above often mentioned: Will Hues said that he will quit smoking, due to the high prices, but that is the mentality of millions of other smokers throughout the world, that said the same thing years before him, although they carried on. Even though the government taxed the industry so heavily, the consumers only need time to realize the set price as the norm, since many smokers will not be able to overcome their addiction. In addition, paralell markets will thrive due to the availability of consumer substitutes, which are available throughout the internet or the black market. Chinese or Mexican brands imported by the consumers will feel a drastic increase of demand, from the western side of the globe. Another problem that would come up would be the extensive pressure put on the American cigarette companies, since they are forced to spend huge amounts of money to maintain their consumers, for example through advertisements.
ReplyDeleteIn the end, I would advise the government not to deliver such a direct blow to the cigarette industry, since that would only cripple the companies, since the consumers would have substitutes. This could also increase the amount of workers getting laid off. They should support negative advertisement campaigns which target the consumer with gruesome pictures of consequences of smoking, rather than to strain the market. Even though I criticised the sin taxes so harshly, they can be useful if they are rightly distributed, proportioned and dilluted by time.
The issue that we brought up is on “sin tax”, a tax imposed on goods that may harm people personally and moreover negatively influence the society. From this, the governments can gain extra revenue and on the surface, it seems like a policy that’s really thinking of the consumers’ health, in the case that the goods are alcohol or cigarettes. As the other peers mentioned above, “1 out of 4 smokers live at or below the poverty line” and it’s true that when the tax is charged and the price goes up, the demand may decrease to some extent, since poor people won’t be able to afford it anymore. However I disagree with Jung hyun’s point that the demand of cigarettes is elastic and the demand would drastically decline due to the sin tax. As Julia mentioned, cigarettes are especially goods consumed by people of great addiction and it won’t be a simple issue that will bring a huge decrease in demand, just because the price has gone up. Even though the sin tax policy may seem effective right after it has been imposed, as the demand may seem to be slightly decreased and the government may have gained extra money, it may cause huge problems after all. As mentioned in an article that “a minimum tax of $2 per pack would be necessary to significantly reduce cigarette sales”, sin tax requires cost which would in the end be coming from the government’s pocket. Also illegal cigarette smuggling, also known as the black market, would go on as a result, extremely severely in the States. “New Jersey police recently pulled over a truck bringing hundreds of thousands of cigarettes from Virginia, where the price is 30c, on its way to New York city, where the tax s $1.50.” clearly shows this and moreover suggests that extra fee would be needed to control and eradicate the smugglers, which would be mostly spent from the tax obtained. Overall, sin tax policies may be quite persuasive and be appealed logically, the long-term problems it may bring about weight out the benefits, and therefore it should not be recommended for the economy.
ReplyDeletehttp://academic.reed.edu/economics/course_pages/201_f06/Assignments/Naturalist_2/Rodgers.pdf
Be it your average chain smoker or the junk food addict, the incentive to quit requires a hefty portion of encouragement. If the government piles enough taxes on these “sin” goods it will overpower their inelastic nature and people will be “encouraged” or rather forced to stop. Although the demand is inelastic if the ‘prices to cover the tax increase’ are raised significantly and beyond a certain point, the demand will become more elastic due to consumers being less willing and able to afford these goods.
ReplyDeleteThe fact that the image of being concerned for the general health comes hand in hand with an increase in revenue makes us question the government’s authenticity with these ostensibly benevolent intentions. The government is well aware that only 25% of all smokers live ‘below the poverty line’, therefore increasing taxes would most likely have a long term affect on this group of people who will fall into a financial trap and compelled to quit, however little under the 75% that live above this line will nevertheless be able to afford the cigarettes and won’t quit in spite of high taxes meaning the government can take on the role of the good Samaritan, but masking their hidden agenda: money.
If however, the government truly wants to make a difference in the physical health of its people it should invest in increasing negative advertisements as well as raising taxes to such an extent that demand drops dramatically and in turn their tax intake also drops. One major problem with this however is that they will be causing severe financial damage to the powerful tobacco industry, and thus will have to aid them by supporting their conversion to healthier producer substitutes.
So if governments are thinking about taxing junk food they should do so, but to the extent that it really makes a difference. In addition they should endeavor to solve overconsumption by investing in education, advertisement (making sports more attractive), expanding healthy “fast food”-chains. All these measures could be, for example, financed by the sin tax intakes they put on junk food, to double the effectiveness of decreasing consumption and ensuring healthier lifestyles.
Astrid V.
A tax is a payment which is made by households or firms which is given to the government. For the people who are addicted to such unhealthy things like alcohol, cigarettes and fast food, a sin tax would at first, in the short run, not really help, because the consumers would just pay the tax. They would not look really at the price change. The demand of these goods is then for the short run pretty inelastic. This means that the consumers are not very responsive to price changes. This also means that the demand will not change by much, when there is an increase in the price.
ReplyDeleteBut in the long run, the consumers would think about it, whether they should still buy the packs of cigarettes or not, because in the long run, they would realize how much money one pack of cigarettes costs. Especially for poor people it will be very expensive. This means that in the long run, the demand will be elastic; this means that the consumers are very responsive to a price change.
I think that in the long run, the sin taxes will help the companies and even the consumers, because the perhaps will partly get away from the unhealthy things.
I think that the enforcement of 'sin taxes' is a positive thing for the government. However, though the government is enforcing a tax of $1.01, some of the companies are taking some of the brunt of that cost. I think we can safely say that they're doing this because they believe the demand for cigarettes is elastic and if they forced the consumer to pay the entire tax, they would see in decrease in sales. The whole problem is rooted in a conflict of interest; the government wants people to stop smoking, so they tax the heck out of cigarettes to lower demand, but the cigarette companies want their consumer base, so they are willing to take some of the tax so they still have demand. I believe the ideal solution to this would be to have a tax enforced that the producers are not allowed to pay, but rather force the consumer to pay all of it. This would decrease demand quite a bit (as cigarette demand is elastic), and there would be less possibility of smuggling (as Soo-min pointed out). This might not be possible, and certainly wouldn't be good for the producers, but if the government really wants to help their people, it should be considered as a possible solution.
ReplyDeleteIgnoring all the bad things about sin taxes, there is one positive part about it that I can think of. This is important to countries that have universal health care where the government is heavily involved. In countries where the government tries to help as much as they can, they do a great deal of sponsoring to the health care system, meaning that they put a lot of money into it. Now, this money is used to benefit the people, although some of them decide to harm themselves thus taking more advantage of it. While many only need occasional medical attention, others decide to drink and smoke which later on will use up the money that the government supplied, in order to get liver transplants and oxygen masks. I think sin taxes are important, because if suddenly everyone starts smoking and drinking so that they need new bladders and a bed where they can lie for the rest of the lung cancerous life, either the government will have to support the health care system with more money, or each individual will have to pay more to receive their health care. Either way, people will have to start paying more. So why would EVERYONE need to pay more although only certain people are the cause of it? Often sin taxes are put on items that have a very inelastic demand, inelastic demand showing that the item could potentially be very dangerous given that people are addicted. The fact that the demand is inelastic could very well be used to benefit the government and to avoid a scenario where everyone suffers for some people’s actions. I think it is right that people pay for their choices themselves.
ReplyDeletePs. Hope this makes sense, I’m tired.
Because sin taxes are on a good that is harmful, and for people to purchase a harmful good, chances are they are addicted to said substance. Therefore, almost all goods which receive sin taxes are addictive. Because addictive goods typically have a very inelastic demand, it can be said that goods which receive sin taxes typically have a very inelastic demand. Thus, when a sin tax is applied to a good, the price is placed almost entirely on the consumer. Because most addicts are below the poverty line (one in four smokers are below the poverty line), these tax burdens are going to fall on those who both cannot afford it and who cannot quit (they are addictive after all). Therefore I see sin taxes as a way the government can take advantage of people to make more on taxes. Although these sin taxes might, in the long run help some small percentage of people quit their addictive habits, there are easier and more effective ways of doing so (for example negative advertising). On the political side, many people will not agree with an increase in sin taxes, as it negatively effects them, and because, the people who were not able to quit will, in the short term, lose quite a bit of personal wealth, which causes the poverty gap to increase.
ReplyDeleteThe Article “Biggest U.S tax hike on tobacco takes effect” shows that sin taxes do have an impact on the market. Cigarettes are inelastic because consumers are addicted to the product, this means the government could profit heavily from the revenue. However the past has shown that “A 10% price increase reduced cigarette consumption about 4%, McKenna said. He expects the federal tax hike to prompt at least 1 million of the 45 million adult smokers to kick the habit.“ The article shows that an increase in Price from P1 to P2 has effects on the market, as mostly teenagers and social smokers quit smoking. However the other 44million smokers remain a burden to the health care system and continue smoking. Additionally I see big problems with the sin taxes in the United States. The sin taxes are regulated by the states, so that the black market and smuggling will increase significantly. “New Jersey police recently pulled over a truck bringing hundreds of thousands of cigarettes from Virginia, where the price is 30c, on its way to New York city, where the tax is 1.50$.” (1) Sin taxes on Junk Food are also very problematic because consumers often times don’t know how or don’t have the time to cook. I think that the legal drugs should be taxed but moderately to avoid a booming black market. Junk food should not be taxed because many people don’t have the choice to buy and cook fresh food every day.
ReplyDelete1) http://www.docstoc.com/docs/4356810/sin-tax
By Leonard Gorbach