A few days ago, Seth Godin wrote this piece, in which he discusses a proposed “soda tax” in New York:
If I worked at Pepsi, I’d be actively lobbying for the obesity sweet soda tax (a penny an ounce) being proposed in New York. Instead, in a no-surprise knee jerk reaction, almost everyone in the industry is lobbying like crazy to stop it. This is dumb marketing.
The benefit of a tax is that it affects you and your competitors at the same time, so you all benefit from doing the right thing, as opposed to having to compete against someone who doesn’t care as much as you do.
This is bad analysis.
Too Clever By Half
The fundamental error that Seth makes is to assume that the “competitors” of a sugared soda manufacturer are other sugared soda manufacturers. This is bunk. The same dollars that are spent on sugared soda might be spent on (just to list a few of the items explicitly excluded from the proposed tax) “bottled water, diet sodas, coffee, tea or milk”. Then there are the more distant competitors, such as other junk foods, and that perennial favorite: “nothing”.
The idea that a “benefit” of a tax is that it hurts you and your competitors equally falls apart once you realize that you’re not really competing only against those who make exactly the same thing you do, but also against competitors who make closely related, but untaxed, substitute goods.
Crony Capitalism
The only sound business arguments for supporting such a tax would be:
- If you run a huge conglomerated drinks company, lead in the untaxed market segments, and trail in the taxed ones, then this proposal would benefit your business at the expense of the competition
- Most taxes and regulations tend to increase the barriers to entry, benefitting established players at the expense of new entrants (and, therefore, consumers)
The Consumer
It’s important to remember the one group unambiguously screwed by such a tax: The poor, beleaguered, overtaxed, over-regulated, harassed, be-nannied consumer, who couldn’t even enjoy a soda without paying a surtax on top of the sales tax he must pay with his income-taxed dollar.
You don’t make either consumers or industry better off by just taking their money. It’s ludicrous to think that you do. You might make them better off if you use the money you raise to supply essential services, but it’s my opinion that we have raised more than enough money to fund all such services, and are deep into the realm of no-net-gain redistribution.
