For some unknown reason, politicians love to spend other peoples’ money. And they love to raise taxes to get more of other peoples’ money to spend. However, raising taxes does not always work–sometimes it has unforeseen consequences. The Laffer Curve taught us that.
Last Friday, Investor’s Business Daily posted an article about the soda tax in Philadelphia. It just hasn’t gone as predicted.
The article reports:
That 1.5 cents per ounce doesn’t sound like a lot, but it is. The Tax Foundation notes that it’s “24 times the Pennsylvania excise tax rate on beer.”
“The high tax rate on nonalcoholic beverages makes them more expensive than beer in some cases,” the nonpartisan think tank wrote.
Some people, suddenly facing absurdly high costs for colas, root beers and other soft drink favorites, are turning to alcohol instead.
Probably not what was envisioned with the tax. And the tax has been put on diet drinks as well as sugared ones. So, if they had hoped to alter people’s consumption away from sugar-filled soda toward less-unhealthy, non-sugared alternatives, it was a failure.
Tax increases never sound like much–they are sold that way. Remember the luxury tax that went into effect in 1991 that nearly killed the boat industry. The tax was only supposed to impact the rich, but it caused a serious recession as the impact of the tax began to trickle down.
The article at Investor’s Business Daily further reports:
“Beverage tax collections were originally promoted as a vehicle to raise funds for prekindergarten education,” the Tax Foundation said, “but in practice Philadelphia awards just 49% of the soda tax revenues to local pre-K programs.” The majority of the money goes to government employees’ benefits and local schools that already have funding.
…the tax didn’t bring in the money the city thought it would. The city budgeted a “conservative” $46.2 million in revenues from the tax for fiscal 2017. At current projections, they’ll come up $6.7 million short. Many people are leaving Philly to do their shopping, while others have switched to other beverages, leaving a big unexpected hole in the tax revenue estimates.
“In July, city officials lowered beverage tax revenue by 14%, leaving the prekindergarten programs that the tax promised to fund in jeopardy,” the study said.
Meanwhile, local Coca-Cola and PepsiCo operations laid off nearly 150 workers and pulled some brands off Philly shelves. And angry local businesses are suing the city over the tax.
Raising taxes is never the answer. Cutting spending usually is.