Cap and Trade and Soda

A few days ago, my family and I went on vacation. On the way back, my family and I were discussing various things including some matters of politics. One thing that came up was some of New York City mayor Michael Bloomberg's recent actions. I expressed the view that the ban on soft drinks larger than 16 ounces seemed rather heavy-handed. (After reading a little more about the exceptions for fruit drinks along with sales at grocery stores, I'm a little more happy to see that, but I still feel the ban was heavy-handed.) I then heard the argument that even if it is heavy-handed, it does help combat the obesity crisis by reducing access to drinking 16 ounces of soda at a time, because even if it is still technically possible for someone to fill up an 8-ounce cup twice, human psychology is such that said person would only fill up once, because for many people the convenience of filling up once trumps the desire to have as much as possible. I then wondered what other alternatives could be considered. The simplest alternative would seem to be a tax akin to taxes on cigarettes; if the large sodas are taxed heavily at such venues, people would naturally be discouraged from drinking as much. I have taken the class 14.03 — Microeconomic Theory and Public Policy, though, so I have seen that in many cases a Pigovian tax scheme like that may not achieve the most efficient outcome because it is difficult to adjust tax rates to control quantities precisely. Then I also remembered learning about cap and trade schemes to control quantities. Would that work? Let's take a look after the jump.

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Chickening Out on the Chicken Tax

I was reading an article in the New York Times about the proposed overhaul of the New York City taxi fleet; all of the finalists in the selection process are minivans targeted at small business owners (Ford Transit Connect, Nissan NV200, and Turkish company Karsan's entry). Just for fun, I searched all three on Wikipedia (and got no results for the last one). While reading the article about the first, I saw that it goes through a rather ridiculous shipping/manufacturing process just to avoid the "chicken tax". I then clicked that article.
Apparently, this tax was put into place in the 1960s in response to France and West Germany's tariffs on goods like chicken. Since then, all the terms of the tax have been lifted except for the tax on light trucks. What this means is that automakers must build light trucks and minivans like these in the US to avoid this rather excessive (and needless) tax. This doesn't just apply to foreign automakers; as you can see, this applies to Ford as well with its Transit Connect. To get around it (because Ford's US plants aren't capable of building the Transit Connect (yet)), Ford imports these vehicles with windows and rear seats (thus qualifying as a passenger vehicle and thus making it exempt from the tax) and then rips out the seats and seatbelts and replaces the windows with metal panels once in the US.
Isn't that ridiculous and ridiculously wasteful (both of materials and money, which goes to show that quite a few taxes create real waste)? (Granted, the seats and windows are recycled, but it would still probably be less wasteful to just not use the materials at all as opposed to processing these materials at a recycling center after the fact.) Also, isn't it ironic that domestic companies that are supposed to be helped by these tariffs are actually being directly hurt by them? The Cato Institute, a libertarian think tank, calls this tax a "policy looking for a rationale". It may have made a little sense 50 years ago, but now, I wholeheartedly agree with them. Will common sense please stand up?

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