The "Soda Tax" Myth 2: It Will Help Raise Money

Or, in another way, "Why the Soda Tax doesn't make fiscal sense."

This is going to be a long post, folks, so I'm diving it up into a few sections:

1. The Fiscal Argument for the Tax
2. The Key Problem with the Tax
3. Who's Hurt By the Tax Economically
4. The Social Cost of the Tax
5. What About Jobs?
   
6. How To Raise the Funds Without a New Tax

So, point one:

1. The Fiscal Argument for the Tax

When you look at the economic outlook for the City of Philadelphia... it's pretty grim. Millions of dollars are needed to keep the city afloat another year, and the deficit just seems to keep getting bigger. To make up the money, the city has floated around some really unpopular ideas: Taxing trash bags, taxing plastic bags, closing down libraries and pools... even threatening to shut down the court system in order to get more money from Harrisburg. Yet it never happened. With unions working without a contract and the problem only getting bigger, these new harsh economic times called for new thinking.

Sadly, it wasn't for the better.
The argument for the Sugary Drink Tax is not based on health. Let me be clear; this argument isn't about your health. While other states may have thought about doing this in order to help keep health care costs down and, in turn, add more money to health care, this has NOTHING to do wit that.

Instead, the tax would be seen as a way to make more money for the city.


2. The Key Problem with the Tax

The problem, though, is multi-pronged.

For starters, revenue from soda will go DOWN after the first year alone.

Let me explain: The reasoning behind a "Sin tax", which is a tax that is imposed on certain items because we've deemed them harmful, is to REDUCE consumption of an item. Let me repeat that: The idea of taxing soda in the first place is to reduce the actual consumption of the product. In turn, you guessed it, revenue goes down.

While some analysis think it could bring in $18 Million or so the first year, keep in mind its based on the idea that people would continue to consume soda at their present rate. Adding an extra 40 cents to a 20oz bottle really isn't going to help.

So, we've covered that the tax isn't to make you healthy, and that the tax revenue from taxing it don't make any economic sense. But who else is hurt?



3. Who's Hurt By the Tax Economically

Retailers, namely the small ones, will be hurt most by this tax. But also you.

Without going into the much detail, in a capitalistic society, the idea is that the market itself determines what people want. In essence, supply and demand. Over the past few years in terms of health, we've seen more demand for healthy food and healthy food alternatives, and the market has responded by creating more healthy choices. But we also understand that the government needs to help from time to time to make sure that businesses look out for us.
The Sugary Beverage Tax would be leveled against retailers first.

Here's how it works:

Retailers would have to pay an annual tax of $.02 per ounce based on what they sell during the year. In turn, this will do three things; either force retailers to cut back on the drinks, force them to raise prices on their soda, or force them to levy the fee to their customers by raising prices across the board on certain items. To be honest, I couldn't even guess which route would be taken by most.

But, lets assume that retailers put it across the board to lessen the blow across the board. In the end, nothing is being done to stop you from buying soda because, well, you're only seeing a minor price increase in soda itself.

It also means that if you don't drink any sugary drinks yourself, you are now a victim of this tax. If you are in favor of this tax, you may be taxing yourself in a new way without even realizing it.

Grocery bill will go up if this law is passed. If the tax is spread across the board, and it could, it means that food prices will go up for everyone. The casual soda drinker is still hurt as much as the habitual one.

Wouldn't it make more sense to offer an incentive to both retailers and citizens to cut back on soda instead of taxing them? Allowing retailers who either cut back on selling soda a tax incentive or even if they stopped entirely would be more effective than a tax!



4. The Social Cost of the Tax

Now we get the the toll this can, and most likely will, have on society in this city. IF this tax is levied, do not expect people to simply stop buying soda. As I mentioned yesterday, diet soda wouldn't be effected and thus presents a new set of problems. Businesses will lose money and many corner stores keeping neighborhoods alive may disappear since they would not be able to compete against the larger stores offering lower prices on basically one item that everyone wants that the smaller places couldn't.

On top of that, people will start to simply cross the county or state line in order to get a cheap soda instead, or maybe stock up.



5. What About Jobs?

We're also talking about jobs.

Some people scoff at the idea that Coke and Pepsi, who both have factories in Philadelphia employing hundreds, if not thousands, are in danger of losing their jobs. To a degree, they may be right. But, please, tell me this; If the city where you had a major plant started to pass laws exclusive to you and their area, wouldn't you think twice about having a factory there?

Is job lost feasible under this tax? Yes it is. Demand would be down in the city, but its likely that outside the city demand would grow thanks to people simply going across either the county or state line to grab as much cheap soda as possible. So while it is possible we could see job lost at these plants, I doubt we'll see them shut down.

But the local stores and operators will be hurt and we will see job loss there.



6. How To Raise the Funds Without a New Tax

So, we've seen that the tax isn't about your health but about making money. I've shown that the reasoning for the tax itself doesn't make economic sense and that the impact on your wallet is effected even if you don't drink soda since the tax could be applied to everything thanks to retailers. I've stated that I think we won't see Pepsi or Coke leave town, but jobs were still in trouble at small retailers thanks to the tax.

How do we make the money back?

It's insanely simple: First, we don't need new taxes. The idea of a tax is to raise revenue, and as I've pointed out, there is no reason this one would work.

Instead, we need to start enforcing laws. We can start with tax evaders.
The City of Philadelphia is projecting a $150 Million Dollar Deficit. The City of Philadelphia IS OWED $300 MILLION DOLLARS. So let me make this so easy, even Mayor Nutter can understand:
-$150 Million + $300 Million = $150 MILLION SURPLUS

Easy enough?

So, that solves our short-term problem... what about long terms problems? How do we keep crime down while making money? Again, another easy one based on simply enforcing the law.

Currently in Philadelphia, minor crimes, a.k.a. Nuisance Laws, are not enforced. These laws include jaywalking, spitting, and littering among other things. All of these offenses can also be ticketed, thus revenue thanks to fines. The idea of enforcing these "minor crimes" is that it reminds you that the police are there for a reason; to enforce the law. How many times have you seen someone break the law in front of a cop and the officer did nothing?

If people start to respect the people who are supposed to protect them, crime goes down. If crime goes down, you don't need to much police presence. The revenue from ticketing may go down, but you've also reduced costs as well.

To be honest, I could go on and on about this. I've written twice with ideas on solving this mess, and the ideas always seem to get ignored. With City Council and Mayor Nutter trying to get more funds, I hope they look toward this and start using these ideas.

Tomorrow, I'm going to explore the issue even more and discuss your health, personal responsibility, and what it all means to soda.