The Bagel Tax Distortion 

Do you owe the government money if you get a bagel for yourself? Apparently you do if you get it sliced by the person behind the counter. And also if you eat it where you get, even if the knife did not touch it. Bread however does not have tax if it is sliced by the person behind the counter.

Writer Catherine Rampell claims that once people catch on to this, consumers will start buying bagels by the whole more than sliced bagels. This type of tax distortion might ultimately affect the government in a negative way.

Why is this tax distortion applied we might ask. Our assumption is that it is the highest selling type of bagel item. Most people buy bagels with butter/cream cheese which is taxed. We do not know if this is caused by the government trying to correct a behavior that they believe to be unhealthy or using the consumers as victims of their greed. Either way, our prediction is different from what the writer claims. We do not believe that sliced bagel sales will go down because of the sheer popularity of the item. Read the article here

http://economix.blogs.nytimes.com/2010/08/26/the-bagel-tax-distortion/