Tuesday, May 10, 2016

Soda/Sin Taxes

Philly's new liberal mayor wants a soda tax, the proceeds of which go to fund (pre-K) education.  Sounds nice, but there's a problem: sin taxes are regressive.  In and of itself that isn't a reason not to do them. Sin taxes do serve dual purposes: more money and discouraging "bad" behavior.  They are particularly useful when the funding received from the sin tax is directed toward treatment or other programs that are related (say rehab for alcoholism, or medical treatment for type 2 diabetic patients).   When that funding is directed to a non-related program that will then rely on the bad behavior to be funded there is a bit of a problem.

It is much better to tax people differentially with higher taxes for wealthier individuals, however, in PA there's a bit of our constitution that prevents anyone in the state from doing progressive taxation.  It seems to me like it should also prevent regressive taxation, but either it doesn't or that's harder to "prove" legally.  So all our taxes are flat: income (actually wage), sales, property...

I think Gov. Wolf had a plan to make our state taxes more progressive with a bit of a work around (everyone is taxed at a higher rate, but then everyone gets an equal dollar value refund or credit or something).  I would like to see something like that done: up the rate to 7% then give everyone a $2k credit and so the first ~$29k of income is effectively untaxed.  Considering our current state tax rate pretty much anyone making less than $60k would get a bit of a tax break and people making more than that would pay more.

Still, not sure that the city could get away with doing something like that (the state seems to be able to stop Philly from doing pretty much anything the state legislators don't like...even if it has zero effect on them or their districts).  The soda tax is not the best option out there but it may be the best option available to the city.

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