Philadelphia's City Council is considering a 3 cent per ounce tax. Health advocates expect it will lead to less soda consumption, fewer deaths, and reduced health care costs.
But that's not why Mayor Kenney wants the tax. He doesn't want to reduce soda consumption, he wants the revenue to pay for public pre-school.
Bizarrely, however, Kenney doesn't think the tax will be passed on to consumers. He says the tax will be taken from the "incredible profit margins" of soda corporations. Which means it's really not a sales tax, but a corporate income tax.
That's laughable, or should I say Laffable. After the Laffer Curve, which tells us that an income tax of 100% will lead to zero in revenue because there is no incentive to earn the income.
The proposed soda tax rate, if interpreted as an income tax, is over 100%. A 12-pack of 12oz soda cans typically sells for about $4.00. Or 33 cents per can which includes cost of production and the profit margin. The proposed tax adds 36 cents to the cost of a 33 cent can.
If soda companies reduced their price of a 12-pack to a penny, they would have to raise the price of the 12-pack from the current $4.00 to $4.37 just to pay the tax.
Does the mayor just expect them to just give soda away?
Or could he be drunk?
If he's drunk, he could soon have plenty of company.
Because if soda companies pass the entire tax on to consumers, a 12-pack of soda will fall in the $8-9 range.
Which is the same as cheap beer.
How many will think to themselves, "Well, if it's now the same price as beer, why not have beer?"
The dreams of health advocates could prove true. Sugary pop consumption could fall because of the steep tax.
Do they want the trade-off?