The Epic Failure Of The Philadelphia Soda Tax - Another Lesson In Politicians' Economic Ignorance

People, mostly Democrats and liberals, constantly want to raise Americans’ taxes to fund programs that never work and often cause more damage to an existing problem. The problem is that raising taxes often backfires on these folks since Americans are very good at protecting their assets or politicians never to do the math to understand the idiocy of raising taxes.

We have previously discussed what happened when the state of Maryland raised the tax rates for state millionaires. Although they raised the tax rates on millionaire earners they ended up getting LESS tax revenue from millionaire earners since these folks just moved to other states:

https://loathemygovernment.blogspot.com/2011/05/why-overtaxing-rich-is-usually-stupid.html

We have discussed the idiocy of Alexandria Ocasio-Cortez who wants to raise the tax rate to 70% on Americans’ income over $10 million. She thinks that raising tax rates just on these high earners high income will fund such socialistic pipe dreams like Medicare For All, free college, the New Green Deal, etc. The problem is she did not do the simple math analysis of IRS records, something we did which we showed her 70% tax rate would fund a only tiny, tiny portion of only one of the programs listed above, never mind funding most, if not all, of the programs:

https://loathemygovernment.blogspot.com/2019/01/january-2019-part-8-political-class.html

Raising taxes rarely works, and it did not work in Philadelphia when it decided to significantly raise taxes on soda purchased inside the city limits. We have previously discussed this insanity but Kyle Smith, writing for the National Review on January 14, 2019, recently did a great job dissecting what has happened in Philly because of a simple soda tax:

• Back in 2017, Philly politicians decided they wanted to start a universal Pre-K program, with the additional benefit of fighting obesity, and to fund it they would put a tax on all soda sales that went down within the city limits.
• As with all politicians who are almost always ignorant of basic economics, namely price elasticity, they assumed that people would buy the same amount of soda and gladly pay the higher prices on that soda caused by the new soda tax.
• The tax they agreed to was 1.5 cents per ounce and so a two liter, standard sized bottle of soda would see its price go up over $1.00.
• But hopeful results never even got much off the ground.
• First, a study by Stephan Seiler of Stanford, Anna Tuchman of Northwestern, and Song Yao of the University of Minnesota found that, “The tax was ineffective at reducing consumption of unhealthy products.” 
• So out of the gate we see that putting a soda tax in place neither resulted in healthier consumption or the reduction in sugary drinks’ sales.
• In addition, it found that the tax hit the poorest residents the hardest since they did not have the ways and means to leave the city limits to purchase their soda, forcing them to pay the higher tax in higher numbers than the less poor.
• Turns out that the non-poor decided that they would rather drive outside the city limits to purchase their soda than stay inside the city limits and pay far more.
• As a result, it turns out that soda sales within the city limits dropped 42% as a result of the tax, resulting in far less money than the politicians had planned for since they did not take into account the simple economic principle of price elasticity.
• Soda sales jumped up significantly in stores within a two mile zone just outside of the city limits.
• “In summary, the tax does not lead to a shift in consumption towards healthier products, it affects low income households more severely, and it is limited in its ability to raise revenue,” the study said. “We find no significant reduction in calorie and sugar intake,” the authors concluded. (A different study in the U.K. found that those who consume the most sugar are the least likely to reduce soda consumption.)
• In addition, since many poorer Philadelphians are on food stamps, the so-called SNAP Federal government program that allows them to use their food benefits for the purchase of soda, indirectly the American taxpayer ended up funding some of the Philly soda tax revenue stream since poorer city residents just used their Federal benefit to pay the higher soda prices.
• Previous studies have found that almost 10% of SNAP dollars are actually used for soda purchases so it is no surprise that there was no improvement in healthier living in the city since it was the Federal government still subsidizing soda purchases.
• Another ironic side effect of raising soda prices so much is that in some cases, beer is now cheaper than soda on a per ounce basis which has resulted in beer sales going up within the city limits.
• And it gets worse: a 2017 study found that supermarkets within the city were losing $80,000 a month on average in beverage sales alone because of the soda tax.
• Even worse, they were losing $300,000 a month in total grocery sales.
• This was because as city residents went out of town to purchase their soda, they decided to do their other grocery shopping while they were there, resulting in grocery sales also migrating outside of the city limits.
• And as a result of losing hundreds of thousands of dollars a month to lost sales, some in city supermarkets were forced to shutdown like one of the Shoprites shutdown by owner Jeff Brown.
• Mr. Brown’s overall sales were down 15% which is a gigantic loss in the slim margin supermarket business, causing him to shut down one of his supermarket stores and lay off 200 employees.
• Mr. Brown had made a point of hiring hundreds of people with criminal records to give them a second chance at life, with many of them now unemployed.
• One such employee, Anthony Jackson, told The Wall Street Journal, “I’d probably be dead, to be honest” if one of Brown’s ShopRite stores hadn’t taken him on. “The Brown family saved me. They showed me something different, that I could be a man in society,” he added. 
• In a sign of total political arrogance and ignorance, the mayor of Philadelphia, Jim Kenney, publicly stated that Brown is “a crybaby, basically.” 

So, simple ignorance about economics on the part of Philly politicians has resulted in the poorer residents paying more to live inside the city, Federal taxpayers continuing to fund not only soda sales but also the Philly soda tax, migration of grocery sales out of the city resulting in closing of stores and the laying off of likely lower income residents within the city limits including ex-cons who were getting their lives together through the generosity and compassion of people like Jeff Brown who was labeled a crybaby by the local political class. 

Oh, and by the way the revenue expected from the tax never came close to what was expected. Higher living costs, lost job opportunities, increased alcohol sales, no public health benefit, and low tax revenues. Seems like the local political class could not have tried harder to be unsuccessful if they tried to fail.

Proving again, that often raising taxes resulted in less not more when it comes to the benefits.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w