Drinking soda shouldn’t be this taxing

In a recent blog entry on Forbes.com, Kelly Phillips Erb writes about the latest item to appear in the “tax gun” crosshairs of Philadelphia mayor Michael A. Nutter: soda. Thankfully, by the time I got around to writing this post, the tax appears to be dead.

Even though I live well over a thousand miles away from Philadelphia, it’s disturbing to read of a plan to single out something I like so much for taxation, on the grounds it’s a “vice.” It’s more disturbing that Mayor Nutter nonchalantly and casually says it’s about money for the schools. Given that Texas is seen as a leader in education (we were the first to pass the No Pass No Play law back in 1984 which was copied elsewhere), it’s easy to see where my concern comes from. (I have quite a bit to say about NPNP and its unintended consequences that I’ll address in a future entry.)

Anyway, Kelly’s post goes on to address the issue that soda taxes disproportionately affect the poor and middle class. I don’t know which, honestly, increases my discomfort more: the “tax it because it’s bad, and people will automatically buy it less” mindset, or the idea that those proposing the tax are probably not in the income brackets that it affects the most.

From Kelly’s post:

I’m not a fan of sin taxes. I think taxes focused on specific products are silly and quite frankly, judgmental. What I think constitutes bad behavior and what you think may be very different. I worry about where we draw the line… What’s next? Video games? Coffee (note to legislators: don’t even consider this one or there could be serious problems)? Candy?

Of particular note: video games (coin-op video games) are already taxed. Most jurisdictions require an occupancy tax sticker to be affixed to each machine. The end players don’t necessarily pay a tax per play, but it’s more money the operators have to take in to break even. It’s another week or two of a new game being $1 per play instead of 75¢ (or whatever they are up to now), or the difficulty level being “hard” instead of “medium”, etc.

Taxing can and does get out of hand. The first (modern) income taxes in 1913 were from 1% to 7%. Today, we are up to the lowest income bracket taxed at 10%; shortly after World War II, of course, the rates were much higher, peaking at 42% for the lowest bracket in 1952 (see the Wikipedia article “Income tax in the United States”). Many states also have their own income tax; almost all have a sales tax of some type (some going well over 10% by the time you add local taxes).

I honestly don’t think most “sin taxes” work in the sense they were intended. What I suspect happens, is these taxes simply add to a growing resent of the government. And that gets people that do potentially irrational things like decide simply to vote against the incumbents, every time (if they bother voting at all).

So either way, a “sin tax” to raise money for education is asking for trouble. It’s a catch-22: if the tax works and gets people to buy the “bad thing” less (soda, in this case), there’s less tax money and the cycle repeats. If it doesn’t work, then you have more people that hate the government. Here’s hoping the likes of Mayor Nutter think it through next time.