Baltimore Considers Higher Excise Tax on Bottles

April 18, 2012

Today, the Baltimore Council will hold a hearing over a proposed increase in the city's excise tax on "beverage containers". The excise tax, which was enacted in 2010 at a rate of 2 cents per bottle and was originally intended to sunset after 3 years, is now being looked at for continuation and potential rate increases. According to Americans for Tax Reform, they are considering raising the rate from 2 cents to 5 cents per container.

Fourteen states proposed excise taxes on soda last year, mostly under the auspices of curbing obesity (here and here I argue that soda taxes won't fix the obesity problem), but it is unclear whether the Baltimore excise tax is meant to curb obesity, or whether it is supported under the pretense of penalizing plastic use.

However, the interesting thing about the Baltimore container excise tax is that it is applied to all containers of beverages, not just plastic ones. It also falls on many products, including beer, wine, liquor, diet soda and even bottled water. Fruit drinks with over 10 percent juice and milk are arbitrarily exempt from the tax.

Here's my problem: if the tax is meant to reduce obesity, diet soda and bottled water should not be subject to the tax, because they have no calories. But if the tax is meant to help the environment in some way, fruit juices and milk should not be exempt from the tax.

The truth, of course, is that this excise tax is not intended to change behavior, or make Baltimore a greener or healthier community. It was actually passed to raise revenue. Unfortunately, in their effort to raise revenue, the Baltimore Council has done some damage. ATR reports that, "when the original 2-cent soda excise tax was enacted in 2010, Pepsi found that it was no longer cost-effective to make soda at their Baltimore facility and was forced to lay off 77 workers as a result."

Politicians have a poor track record with picking winners and losers through the tax code. If you need additional revenue, this is not a neutral way to raise it.

Follow Scott Drenkard on Twitter @ScottDrenkard.

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