Office Hours

Candy taxes won't have much impact on taxpayers' sweet tooth

You can pretty much count on two consumer impacts from the recent new sales taxes imposed by Washington's legislators, says Jeffrey LaFrance, a Washington State University professor.

So-called "sugar taxes" imposed on candy and gum will hardly change the consumption of Washington's sweeth tooth community, said LaFrance, who is professor of agricultural and resource economics in Pullman.

That's because the sales taxes on candy and gum are not large enough to force consumers to change their spending habits.

But the state's new $1 a tax increase on packs of cigarettes will certainly lead to a notable decline in  overall sales, said LaFrance.

Cigarettes are "unit elastic," he explained. That means if cigarettes pre-tax were $6 a pack, the added tax of $1 will have a like size negative impact on demand. So $1 is roughly 16 percent of $6, and LaFrance said the impact should be about a 16 percent decline in cigarettes bought in the state.

 

he demand for candy and gum is inelastic, LaFrance noted, meaning the net change is nowhere near the percentage increase in the unit price.

So with sales taxes now imposed on most candies and gum, the decline in sales will be from 8 tents of a percent up to 1.6 percent, said LaFrance.

"Those candy and gum increases are not salient to consumers," he said. "It won't cause them to say, 'Oh, my Snickers now costs 10 cents more.' ... People now pay sales taxes on nearly everything."

According to Dept. of Revenue estimates, the impacts on the state's coffer of the new taxes are:

  1. Candy and gum sales tax is projected to generate $30.5 million in FY2011 and $62.4 million in the next biennium (FY2012-13)
  2. Cigarette and other tobacco products tax is expected to generate $92.4 million in FY2011, and $197.8 million in the next biennium.
  3. Carbonated beverages tax is $33.5 million in FY2011 and $72.4 million in next biennium.




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Tom Sowa
Tom Sowa covers technology, retail and economic development and writes the Office Hours blog.




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