Philadelphia’s Failed “Soda Tax” Is Nothing Compared To Income Tax Failures

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The city of Philadelphia recently implemented a “soda tax” at the start of the calendar year.  As recently reported, it hasn’t gone exactly as planned:

Two months into the city’s sweetened-beverage tax, supermarkets and distributors are reporting a 30 percent to 50 percent drop in beverage sales and are planning for layoffs.

One of the city’s largest distributors says it will cut 20 percent of its workforce in March, and an owner of six ShopRite stores in Philadelphia says he expects to shed 300 workers this spring.

“People are seeing sales decline larger than anything they’ve seen up to this point in the city,” said Alex Baloga, vice president of external relations at the Pennsylvania Food Merchants Association.

The failure of this tax is about as surprising as seeing the sun rise in the morning.  The Burning Platform in particular has covered the tax on many occasions: here, here, here, and here, and they’ve been excellent at demonstrating the lunacy of the tax itself:

While the tax is technically 1.5 cents per ounce, which doesn’t sound too terrible, when buying a 10-pack of 20 oz bottles those numbers climb pretty quickly. In this case, a 10-pack of Propel flavored water that originally retailed for $5.99 had an additional three dollars tacked on to it in taxes.

Chuck Andrews picked up a $1.77 gallon jug of tea, got home and looked at his receipt.

“When I read the receipt I’m like, ‘Wait a minute. I paid more in tax than I did for the product,’” Andrews said.

The tax on the $1.77 gallon of tea was $1.92 cents.

The failure of the soda tax is but a microcosm of the failures of “MOAR” taxes to solve budgetary problems.  At a certain point, if you raise the tax enough, you will start to take in less revenue.  Unsurprisingly, behavior is modified when you tax soda to 100%, and less income is generated as a result:

To hit its annual target, the city needs to collect $7.6 million a month in tax revenue. The first collection was due Feb. 21 but collection information won’t be available until next month.  Early projections from the city’s quarterly manager’s report predict only $2.3 million will come through in the first collection.

This brand of Democrat politicians and tax-and-spend policies is hardly limited to soda – a much bigger, more pertinent example is that of state income taxes. In their quest to fund their ever-increasing municipal and state budgetary shortfalls, Democrat politicians think that the easiest solution is to just raise the income tax, particularly on high earners.

It seems that none of them have ever taken even the most rudimentary of economics classes, as they have absolutely no understanding of the concept of “optimal tax rate” and why it is important.  The idea is simple – there’s an “optimal” rate where the state collects the most income from taxes, based on how much citizens earn/spend, which of course also depends on the type of tax.

So, what happens when states raise their taxes on their top earners?  There are plenty of examples to look at, but the result is almost always the same – the state takes in less revenue from those in the top brackets.  It doesn’t take a genius to figure out why – a percentage of the top earners simply pick up and leave.  It is an example of the optimal tax rate being below wherever they raised it to, and possibly even below the existing rate.

Maryland increased their state income tax ten years ago, and predictably, it backfired:

The study, by the anti-tax group Change Maryland, says that a net 31,000 residents left the state between 2007 and 2010, the tenure of a “millionaire’s tax” pushed through by Gov. Martin O’Malley. The tax, which expired in 2010, in imposed a rate of 6.25 percent on incomes of more than $1 million a year.

The Change Maryland study found that the tax cost Maryland $1.7 billion in lost tax revenues. A county-by-county analysis by Change Maryland also found that the state’s wealthiest counties also had some of the largest population outflows.

So what did Governor Martin O’Malley do after this happened?  You guessed it – MOAR:

O’Malley and the legislature increased income taxes again in 2012, arguing that the state needed more revenue to maintain education spending.

In all, Maryland’s income tax became significantly more progressive during O’Malley’s term. But there were regressive tax increases, too. The 2007 Tax Reform Act also raised the state sales tax from 5 percent to 6 percent, and the cigarette tax from $1 per pack to $2 per pack. In 2011, the state’s alcohol tax went from 6 percent to 9 percent and two years later, annual inflation-adjusted gas tax increases were created as part of a larger transportation bill.

Illinois enacted a similar round of tax increases in 2011:

Patrick J. Quinn, the governor of Illinois and a Democrat, praised the decision of state lawmakers — in the wee hours of the morning on Wednesday — to raise the individual income tax rate by about 66 percent as a necessity to avert the state’s “fiscal emergency,” which includes a budget deficit of more than $13 billion, about $8 billion in unpaid bills to social service agencies, pharmacies and others, and a sinking bond rating.

And you should already know where I’m going with this – it backfired:

This population drop is fueled by the 114,144 residents who left to move to other states. That ranked number two behind only New York which lost 191,367 residents to other states. Since 2010, over 540,000 people have fled Illinois to other states, again, behind only New York, which has lost almost 847,000.

And what is the plan to solve the (ever increasing) budgetary crisis in Illinois now?  You guessed it – MOAR:

And Illinois Senate leaders are proposing to make all of this worse. Their original plan was to raise the personal income tax rate by 32 percent. Now reports note that the rate could go even higher, with as much as a 40 percent income tax hike on the table. With no meaningful spending reforms in the discussion, Illinois’ personal income tax rate could hit an all-time high of 5.25 percent.

They aren’t the only ones – California and Maine also upped the rate on their top earners after special ballot questions in the last elections:

California, which extended temporary tax hikes through 2030, will keep its place on top of the list of the highest income tax states with a top 13.3% rate, and Maine joins in second place with a new top 10.15% rate, up from 7.15%.

I could go on about this forever, but it shouldn’t take a rocket scientist to figure out how these increases will affect tax revenues collected by these states that have enacted these increases.  And who enacts them?  You guessed it – Democrat politicians with no understanding of optimal tax revenue, who simply want to rob the citizenry to bail them out of their own inability to balance a budget.

You don’t believe me?  Take a look for yourself.

In the above map, red represents “wealth” lost, and green represents “wealth” gained by migration.  Surprise, surprise – the reddest states (in particular California, New York, New Jersey, Illinois) are by and large run by Democrat politicians who have tax-and-spent their tax base out of the state.  Where are these residents going?  Surprise, surprise – the states with low (or no) income taxes, and have an overall lower tax burden.

And who pointed this out?  The Maryland Reporter, when it analyzed Governor O’Malley’s MOAR tax increases.  Remember those?

But some argue it shows where dollars are moving and jobs are being maintained and generated – an important factor for policymakers to consider. The IRS migration data is based on the address of record on individual income tax returns filed and received by the IRS from Jan. 1 to Dec. 31 of 2012 (for tax year 2011) and 2013 (tax year 2012).

An analysis of the data for the campaign of Republican Congressional candidate Mark Plaster found Maryland had a net decline of 5,596 taxpayers, with an adjusted gross income totaling $1,633,487,000.

Do not think the concept of optimal tax rate and the constant talk of increased income taxes and excessive taxation can’t be repeated at the federal level, either.  The Obama administration’s FATCA law, enacted in 2010, was designed to help crack down on the “wealthy” hiding their assets in offshore tax shelters.  But the law has instead become a nightmare for expats, forcing them to pay more time and money doing their taxes, and oftentimes pay more in taxes than they did before.

So what has happened?  You guessed it – record renunciations of US citizenship, all so citizens can remove themselves from the draconian clutches of the IRS.

When it comes to liberal tax-and-spend policies, we can come back around to the Philadelphia soda tax, where The Burning Platform said it best:

Democrat politicians are (the) dumbest motherfuckers on the planet. Mayor “beak nose” Kenney is a world class, union loving, corrupt, financially illiterate dumbass. His fucking city is bankrupt and a soda tax negatively impacting the poorest people in the city the most is his solution??? These worthless piece of shit politicians are the lowest form of life on the planet. Their stupidity and hubris know no bounds.

Democrat politicians don’t understand the net impact of their tax hikes, and lack a basic understanding of the concept of optimal tax rate.  Expecting this to change is an exercise in futility.  The allure of “other people’s money” is always too much for spendaholics.