If You Tax Something, You Get Less of It
CHICAGO SUN-TIMES--Are Chicagoans trekking to the suburbs to buy cases of bottled water -- and avoid a new nickel-a-container tax that adds $1.20 to the price of a 24-pack? Or are they making the switch to tap water to save money? One or the other is happening. Maybe both.
Revenues from Chicago's new bottled water tax are trickling in -- at a rate nearly 40% below projections -- exacerbating a budget crunch that has already prompted Mayor Daley to order $20 million in spending cuts. January collections were $554,000. That's far short of the $875,000-a-month needed to meet the city's $10.5 million-a-year projection.
Comment: Some remedial economics for Chicago's City Council?
1. People respond to incentives.
2. Demand is elastic, and there are substitutes for everything.
3. If you tax something, you get less of it.
Or to paraphrase Thomas Sowell, this story suggests that "The first lesson of economics is that people respond to incentives. The first lesson of politics is to ignore the first lesson of economics."
(HT: Market Power)