Increased Taxation in the USA - Essay Example

?Running Head: Article Analysis Article Analysis [Type the document sub Teacher’s [Pick the Several countries in the western world, especially the United Kingdom and United States of America, are plagued with diseases connected to obesity. Both these countries have been paying considerable attention to this worrisome issue. The striking rise in the annual national healthcare exchequer borne by the government is becoming a burden in these harsh economic times. In order to curtail these expenses and promote a healthier living amongst citizens, both countries are developing policies that would curb the intake of hazardous food. Some of these attempts involve introduction of food regulations that would force the food manufacturers to reduce the percentage composition of fattening substances in their products, in addition to imposing new taxes on manufacturers and products that contain sugary substances and other fatty acids. Theoretical analysis of increased taxation leading to price change with the help of economic theory of taxation illustrates that consumers’ behavior can be altered if all the similar products are taxed and certain incentives are introduced for the manufacturers to support government’s measures. The government of United Kingdom is planning to utilize its national policy as a tool to control its ever-increasing problem of obesity. The concern is debated in media, Parliament and healthcare institutions, although a firm regulation addressing the subject is far from being implemented. The sterner measures in UK such as introduction of fat tax aimed to reduce sugar intake are also admired by the French, who have a similar issue on their hands. On the other hand, United States of America, the front runner in the obesity problem, believes in a more cautionary approach, spending USD 4 million on introducing “weight watchers” programs and similar initiatives. The article written by Sally Peck, published in Telegraph UK on 23 January 2013 asserts that taxing junk food and subsiding vegetables can be a handy tool against the obesity crisis. She quotes the claims from Public Health Minister Anna Soubry that poor people are likely to be obese due to poor nutrition in their daily intake (Chalabi & Burn-Murdoch, 2013). She also asserts that obesity gives rise to serious diseases and health disorders, ultimately leading to an early death. In addition to its deadly affects in current population, the rate at which obesity is increasing should be a clear warning sign for NHS and other government regulatory bodies. It is a proven scientific fact that growing children and teenagers require proteins and vitamins available in natural products such as vegetables, dairy products or fruits. An opposite daily food intake is witnessed in UK and US, where processed food, carbonated drinks and fattening food is readily available. Youngsters do not prefer eating vegetables or fruits; instead, a high intake of carbohydrates and sugar along with other preservatives has become a routine part of their lives. The lack of exercise and sports in daily routines with excessive sugar intake is playing its role in enhancing overall weight related problems (Peck, 2013). The article goes on to explain the impact of raising taxes on junk food and fizzy drinks from different perspectives. According to research conducted by the University of Oxford, “fat taxes would have to increase the price of unhealthy food by 20 per cent in order to bring about cuts in consumption significant enough to reduce obesity and its related health problems” (Peck, 2013). Other research conducted in the U.S. explains that consumption of sugary products and drinks can be reduced by 20 percent if a high tax is imposed. By adopting such measures, the United States government can save USD 30 billion in a decade from healthcare expenditure. However, another school of thought asserts that fat tax can act as a burden on poor class that has access to mainly junk food for meeting their dietetic requirements. Furthermore, it is also argued that in response to increased tax rates, beverage and food manufacturers may use other marketing tools such as cheaper larger bottles to attract general public; alternatively, customers may also chose to opt for cheaper brands and buy drinks at special offers (Campbell, 2011). The suggestions provided by healthcare professionals and economic analysts can be examined with the help of economic theory of taxation and its extensions. The economic theory of tax compliance explains that tax plays a vital role in generating revenues for the government, later spent to provide welfare services to the general public. These taxes also have a tendency of shaping social behavior and not only providing a definition to state-society relationship but also helping in redistribution of wealth that causes development of social structures. The theory of tax compliance is affected by the economic theory of crime, which says that the amount of fines imposed in terms of taxes and other related penalties acts as the decisive factor for the amount of tax or income evaded. Deterrent tax policies are used by governments around the globe for not only collecting taxes by imposing penalties but also for shaping consumers’ behavior. Increasing the taxes on tobacco-based products and alcohol acts as an example of usage of fiscal tools by governments for shaping consumer’s preferences. Another rationality of using economic policy of tax compliance can be provided with the help of Crowding theory (Frey, 2003). The theory enforces relating extrinsic and intrinsic motives of the tax payer to the related purchase. With increased tax rates on a certain product, a tax payer with marginal income will evaluate the extrinsic and intrinsic benefits of such expenditure and perform the purchase accordingly. In addition to tax evasion tools, other doctrines are used by governments to induce a particular buying behavior in the society by controlling prices. With increase in overall prices as a result of increased rate of tax transferred from manufacturer to general public, forces of demand and supply come into play. With a lack of coherence between the prices, consumption levels of a certain commodity can be controlled. However, while using demand and supply forces to alter consumer behavior, it is important that all manufacturers of such products are bound by these regulations (Edgeworth, 1897). In addition to these two basic characteristics, relating amount of tax to the quantity sold can also act beneficially for controlling overall consumers’ buying trends i.e. bulk purchase. Hence, by imposing fines, punishments on evasions and managing changes in demand and supply forces, consumers can be influenced to exhibit a certain kind of behavior desired by the state. A comparative analysis of the news article written by Peck (2013) and the discussed theoretical models shows that taxation can act as an effective tool for curbing excessive intake of sugary products and soda. If the doctrines of above mentioned theory is followed, it can be predicted that governments can use a percentage of sales tax on manufacturers that will be forwarded to consumers. A combating tool used by such manufacturers can be decreased in their profit margins for keeping the prices lower and so help achieve economies of scale to compensate for the losses incurred by reducing prices. However, the influence of food regulation authorities can be used to ensure that the desired impact is forwarded to the general public. Hence, the concept of tax evasion comes into play where fines and imprisonments can be used as a tool to ensure that manufacturers make a desired change in their price models and keep them consistent with governments’ policies. Further analysis of demand and supply forces suggests that consumers may opt for alternative products and substitutes when a price of a certain product is increased. Therefore, it is important to increase the price of homogeneous products, i.e. all the drinks that fall in the category of soda drinks and full-fat beverages. Hence, instead of giving consumer an opportunity to switch from one hazardous product to another, a general shift in behavior should be encouraged. The argument that the burden will be felt more by the poor class of economy stands true as the theory predicts. Limited resources allow the individuals to make choices in terms of opportunity costs that would allow them to purchase healthier products. However, it is also important that the commodities that fall under the category of being healthy should be subsidized so that general public can purchase them with an overall increase in purchasing power. After evaluating the predictions of the economic theory, it is important that suggested strategies can curtail obesity while being aligned with the principles of the theory. The theory suggests that demand and supply mechanism can be used to affect consumers’ choices. This mechanism has been duly followed as the policies suggest a significant hike in prices. The implications of crowding theory as a rationale for theory of taxation defines that consumer may perceive gaining extrinsic benefits by avoiding certain products that have higher prices as a result of a particular price change. The poor class is also showing signs of obesity due to lack of food with less nutritional value; expected changes would benefit the poor class if the cost of healthier food is reduced. On the other hand, principles of taxation assert that evasion of taxes can be avoided through fines and punishments, if so, there rises the question of what tools will be used by the governments to make corporations and manufacturers add tax into their prices directly affecting their sales. Giant corporations like Coca-Cola and Pepsi have a higher bargaining power due to their share in the countries’ economy. Acceptance of such legislation would be easy without an intervention of courts. The monetary tools and theories do not guarantee the willingness and acceptability of these manufacturers and corporations. Hence, some of the suggestions to control obesity are in line with the theoretical model whereas the rest needs further consideration. The issue of obesity has been turning into a major problem with monetary consequences for governments all across the globe. The increasing healthcare budget, increasing rate of mortality of young people and decreasing trend in economic productivity of ageing labor makes obesity a major threat. The workforce of US and UK is ageing, and the availability of sufficient young replacements is a serious concern. On the other hand, huge budget deficits caused by increasing public healthcare expenses is also a worrying element for governments. In the article written by Peck (2013), utilizing tax regulations as a tool to reduce obesity is discussed. The increase in tax rates and prices in the light of economic theory of taxation, i.e. theory of tax compliance, etc., suggests that consumer behavior can be altered if equal tax is levied on all the homogeneous products to avoid the presence of substitutes. Furthermore, certain incentives are required to be introduced for manufacturers as well to obtain their support in this cause. References Campbell, D. (2011). Experts call for 10% 'fat tax' on soft drinks to prevent obesity. Retrieved from: http://www.guardian.co.uk/society/2011/dec/21/sugary-soft-drinks-obesity-tax Chalabi, M. & Burn-Murdoch, J. (2013). Public health minister links obesity to poverty: what does the data show? Retrieved from: http://www.guardian.co.uk/news/datablog/2013/jan/23/fact-checking-obesity-poverty-link Edgeworth, F.Y. (1897). The Pure Theory of Taxation. The Economic Journal, 7(25): 46-70. Frey, B.S. (2003). Deterrence and Tax Morale in the European Union, European Review, 11(3): 385-406. Peck, S. (2013). Tax junk food and subsidise vegetables to fight ‘poor obesity crisis’. Retrieved from: http://www.telegraph.co.uk/women/mother-tongue/9821382/Tax-junk-food-and-subsidise-vegetables-to-fight-poor-obesity-crisis.html Read More