Taxes: Hey, here’s a great idea: Let’s tax soda to the hilt, rake in tons of money, and spend it on Pre-K education. What could possibly go wrong? Well, the city of Philadelphia just found out.
So-called sin taxes, intended to make people pay extra for their unhealthy or socially undesirable habits, have always been popular. Since people often feel guilty about their bad or unhealthful habits, it’s often easy to tax them more for their “sins.”
It was in this spirit that Philadelphia raised the tax on soda sky-high. What taxpayers got was a lesson in unintended consequences.
A recent study by the nonpartisan Tax Foundation found that the 1.5-cents-per-ounce tax it slapped on soda, in the words of the Washington Free Beacon, “has fallen short of revenue projections, cost jobs, and has forced some Philadelphians to drive outside the city to buy groceries.”
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.
But here’s the kicker.
“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.
There’s a word for that in the private sector: Fraud.
Worse still, from the city’s perspective, 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.
Sure, raising taxes always sounds great, but it rarely works as advertised. Just ask Philly.
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