Taxes

Siny Joseph, Kansas State University,
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Summary

Students will listen to an NPR podcast on soda taxes prior to class and be able to reinforce their understanding on implications of taxes and market outcomes.

Context for Use

This activity is appropriate for principles course.
Students should have prior knowledge about supply/demand, taxes and elasticity.
No limit on class size.
One class period would be sufficient for this activity.

Overview

Students will apply their understanding of taxes to an NPR podcast about soda taxes. The podcast will be assigned prior to class. In class, students will discuss the podcast and then answer the questions. The activity will reinforce their understanding of implications of soda taxes and market outcomes.

Expected Student Learning Outcomes

Upon completion of this application exercise:

- Students' ability to conduct the technical analysis of a tax should improve,

- Students will learn to assess to benefits and costs of a particular tax policy


Information Given to Students

Students are required to listen to the NPR podcast "U.S. Soda Taxes Work, Studies Suggest — But Maybe Not As Well As Hoped" prior to class.

Activity:

The Philadelphia soda tax imposed on beverages sweetened by sugar and drinks containing low-calorie sweeteners has the dual goal of raising money for schools and playgrounds, and of fighting obesity. It was found that there was a large increase in the sales of soda and other taxed products outside the city, making the actual decline in soda sales due to the taxes imposed to be 20% instead of 46%.

Suppose that your team has the task of advising Jim Kenney, the Mayor of Philadelphia, about whether to support or oppose the continuation of the soda tax in the city.

Which of the following effects of a soda tax is most important?

A. Increased government revenues.

B. Improvement in population health.

C. Loss of individual freedom to choose what to drink.

D. Reduced health care spending by individuals and government programs.

E. Revenue losses by beverage companies.

Team reporters must have the technical analysis of the tax in a supply-demand framework in their notes.


Teaching Notes and Tips

The NPR podcast needs to be assigned before class. Students should have prior knowledge of elasticity, demand/supply and taxes.This activity should come late in the sequence of AEs in the supply-demand analysis. If the instructor has not yet demonstrated tax analysis in this framework (say, in remarks following the readiness assurance process for this unit) she might do so immediately before this activity. The following follow-up questions are recommended for facilitating the debriefing conversation:
Please explain why the effect your team chose is the most important.Which effects did your team remove from consideration early in your discussion? Why?Economists often assume that individuals know best how to spend their income in the way that leads to the greatest happiness. In the case of soda consumption, why might individuals not make the best choices for themselves and/or society? (There are a number of places the ensuing conversation could go. Ignorance of health effects. Health costs of obesity largely fall on other people. Hyperbolic discounting. Instructor should come back to these points in closing remarks!)What is the desirable scope of a soda tax? Local, county, state, or federal?The answers could be distributed across A and D. Instructors need to hone in on option A. It is vital to discuss how moderate success in lowering obesity rates and raising revenue is a better outcome than none at all.To conclude the activity the instructor can discuss the Planet Money podcast on the proposed penny-per-ounce tax and price elasticity of demand.

Assessment

Planet Money podcast "Would A Soda Tax Be A Big Deal?" quotes studies which state a 10% increase in the price of soda would lead to a 7% decrease in the amount of soda calories people consume. Is demand for soda price elastic? Discuss tax incidence.
Basic supply-demand analysis of a soda tax leads to the conclusion that such a tax causes deadweight loss. Should such taxes therefore be abolished? Explain your answer carefully.

References and Resources

https://www.npr.org/sections/money/2010/03/how_much_would_a_soda_tax_chan.html
https://www.npr.org/sections/thesalt/2019/02/21/696709717/u-s-soda-taxes-work-studies-suggest-but-maybe-not-as-well-as-hoped