What is Less Popular than Soda? Tobacco.

May 26, 2010

Soda taxes are out in Philadelphia, but tobacco taxes are in:

Real estate taxes, commercial trash fees and the cost of tobacco and related products will all go up under a fiscal 2011 budget passed by Philadelphia City Council on Thursday.

But sugary beverages won’t be subject to a 2 cents-an-ounce tax. Mayor Michael Nutter, who supported the tax, said that the budget as passed will cause the city’s general fund to run dry in the upcoming fiscal year. To prevent that from happening, more than $20 million in additional cuts will have to be made, including the elimination of 339 positions, Nutter said.

…The budget also raises commercial trash fees from $150 to $300, which will generate about $7 million more annually. Blackwell, Green, Kelly, Krajewski, O’Neill and council member Frank DiCicco all voted against the trash increase.

The tobacco tax, which applies to loose leaf tobacco and cigars, might be set-up to fall short of revenue estimates for a couple of reasons. First, optimistic revenue estimates allow the government to not cut spending (more than they have). There can be an incentive for politicians to be overly optimistic forecasting tax revenue. Also, while we raise the issue of state border shopping as a concern for stable tobacco tax revenue, the issue is especially present for a smaller bordered city. It would make sense that border shopping—in order to escape higher taxed products—is a function of the cost of crossing the border and the price differential of the product in and outside of that border.

Other than that, tobacco taxes run into just as many as issues as soda taxes within the context of sound tax policy. Discriminatory, paternalistic, and un-effective.


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