Sin Taxes 2.0

The passage of a bill that will introduce universal health care has come as a beacon of hope to low income citizens. Although controversial, the bill stands to improve the lives of millions Americans by providing them with a means to obtain affordable health care. The bill is far from what liberals would consider favorable (i.e universal coverage under the government) and seen as the beginning of the end US by republicans.

Aside from all the political wrestlings the bill now places the burden of health care costs on every citizen. It is now the responsibility of everyone to do their part to reduce the growth of health care inflation. Although it is extremely difficult to effectively place the optimal set of taxes to correct this externality it is necessary to start somewhere.

The method of pigouvian taxation has already taken place in the health care sector in the form of sin taxes (which is what they are popularly referred to). These taxes, which are highly levied on the cigarette and alcohol industries have greatly affected consumption (in the former industry more than the latter).

Now it is time to place a new set of taxes on another industry, mainly fatty foods. This needs to be done in order to correct the externalities associated with obesity and reduce the rate of health care inflation. If conducted correctly these taxes may lead to both Pareto improvement for society and manageable premiums from the health care industry which in turn induce savings in the health care program.