Tuesday, March 16, 2010

a soda a day keeps the tax man away

You know I can't resist this one.   News is that city thinks a 2 cents per ounce tax on sugary drinks will bring in $25 million dollars a year.  I like the graphic PG has of what that will mean in terms of new taxes on different products.  You are talking a fair bit.  Looks like it would double the price of that 2 liter pop.  So we are talking a lot bigger impact than say the alcohol tax in Allegheny county.  Whether pop drinkers get as upset as the restaurant owners who knows?

But lets see what that math looks like. 

to get $25,000,000

at 2 cents per ounce that equates to 50 ounces per $ of revenue =

1,250,000,000 ounces per year to be taxed

300,000 people in the city =

4,167 ounces per person per year

12 ounces per can

347 cans consumed per year or equivalent
365 days per year =

0.95 cans of pop per day per person from every living Pittsburgher, infant through seniors, throughout the entire year.  And all bought from taxable sources don't forget. 

OK..  at least that seems reasonable.  Certainly more in the realm of possibility than the great Ho Ho metric which turned out to be incorrect anyway.  There is this little thing called price elasticity that I suspect folks are ignoring.   We will have to bring back Border Guard Bob to stop the secret smuggling of soda from outside the city.  Probably need to include the Coast Guard to block the rivers as well.  Big vats of soda could be hidden on those coal barges I suspect. 

What's next...  taxing the perogies?


Anonymous Chris said...

The math works, except that you left out the assumption that every one of those cans would have to be purchased within the City limits...

Tuesday, March 16, 2010 5:53:00 PM  
Anonymous MH said...

In keeping with what they really tax to death around here, I propose calling this the tax on mixers.

Tuesday, March 16, 2010 6:26:00 PM  
Blogger Grimace said...

If they taxed politicians' stupid ideas they could probably make more money.

As long as taxpayers involuntarily contribute more money to the government and get progressively worse services, this is a great idea!

Tuesday, March 16, 2010 6:59:00 PM  
Anonymous Anonymous said...

One major flaw in your argument genius, the tax would be on any soda sold in the City - NOT just to City residents.

Tuesday, March 16, 2010 8:55:00 PM  
Anonymous MH said...

I wonder what the loss would be to city merchants. An extra $.24 a can might be enough to get more workers to bring them in from home. And an extra $5.76 a case might be enough to make somebody take their whole shopping trip to a Giant Eagle over the border. Unlike buying liquor in West Virginia, I don't see how that would even be illegal.

Tuesday, March 16, 2010 9:07:00 PM  
Blogger C. Briem said...

There is a big point there. Pittsburgh is not Philadelphia spatially. and even if the concept of a supplemental sales tax on soda is feasible in Philadelphia, it just isn't as conceivable in the city of Pittsburgh where lots of people do shop outside their municipality of residence. I think this is what MH is saying, but it's not that people will take their soda purchased out of the city proper, but they will change the store they go to.

Tuesday, March 16, 2010 9:50:00 PM  
Blogger n'at said...

how do the corn subsidies play into this? If the whole notion is social engineering by way of government disincentives, then why not reduce or eliminate the government incentive which allows cheap corn syrup in the soda? Would the elimination of subsidies inflate the cost of soda enough to achieve the desired result? If not, then do both.

Tuesday, March 16, 2010 10:57:00 PM  
Blogger C. Briem said...

Oh, I'm slow. I get it now. It's all about the daytime population eh? Soda tax as a proxy commuter tax. Cool idea.

corn subsidies eh? So the WTO will be taking up the Pittsburgh pension problem as an unfair tariff issue? Even cooler.

on the commuter issue... there is a great little exercise in tax revenue forecasting. I used to work for CBO, I can do this. Not just what is the inter-municipality price elasticity of soda.. but when measured by volume (by ounce that is) what share of soda purchases are made at one's place of work versus place of residence. I'm sure that was all worked out for that $25 million dollar revenue estimate.

Tuesday, March 16, 2010 11:13:00 PM  
Anonymous MH said...

N'at, my guess is that by the time you've raised the price of corn so high that the cost of a can goes-up by $.24, you'd have much of the 3rd World in a famine.

Anyway, the government basically tries to raise the cost of corn. Mostly. The bigger government impact is the sugar tariff, which keeps the cost of regular sugar high. I'm not sure if the jury is back on whether corn syrup is worse than sugar.

Wednesday, March 17, 2010 12:03:00 AM  
Anonymous Anonymous said...

The PG graphic says that the tax is on drinks with "added sugar." What all falls within that definition? Many juice and sports drinks have added sugar, so do drinks like a Mocha Latte at Starbucks. Are we going to be taxed on each shot of flavor syrup in our morning caffeine fix?

It seems like a very hard thing to regulate compared to the drink tax. Alcohol is heavily regulated by the state so its easy to track and slap an extra 7% on, but the beverage market is a total free-for-all with no government regulation at all. Who's going to evaluate every single beverage on the market to determine what would be taxed? This is going to be a mess.

Wednesday, March 17, 2010 1:00:00 AM  
Anonymous Anonymous said...

If someone is a hardcore soda drinker, he/she will just drive to the 'burbs to stock up, which means he/she will likely make his/her major grocery purchases outside the city limits --less jobs for city residents and less tax $$$.

I am already doing some of my grocery shopping at the Market District in Robinson as it has a much better selection and is less crowded than the one on Centre & Negley (which is only a few blocks from my home. This would only incentivize me to do ALL of my shopping outside the city limits.

I seriously doubt that this is even legal. Philly has much greater taxing authority than the Pgh does.

Wednesday, March 17, 2010 2:13:00 AM  
Blogger n'at said...

corn subsidies... a stretch, but he has been to the white house a few times.

what is interesting about the proposal for pittsburgh to levee this tax, is when a bunch of municipalities got together a few weeks ago to discuss budget issues and what they could request from the state legislature, the consensus wasn't around consolidation of pension funds or anything which would help pittsburgh. They wanted the same ability to raise revenue that pittsburgh has currently.

I'll take a small leap and say that if pittsburgh gets this taxing ability, then every other municipality in the commonwealth will have it too.

Wednesday, March 17, 2010 9:22:00 AM  
Anonymous MH said...

My guess would be that some small municipality with a very high percentage of retail property (i.e. Homestead) would not put on the tax if they could avoid it.

Wednesday, March 17, 2010 9:27:00 AM  
Blogger fester said...

I agree with all that this tax at this rate with this fragmented of a market is a very bad idea on multiple levels.

However, I wonder if that is the point... show that the only potentially plausible ideas to balance the city budget are absolutely ridiculous under current constraints, and therefore seek either broader taxing authority for relatively straightforward and mininally intrusive taxing or to prep a case that this is all Harrisburg's/Dan Onorato's fault and not the fault of the boy wonder.

Wednesday, March 17, 2010 1:02:00 PM  
Blogger JRoth said...

I am already doing some of my grocery shopping at the Market District in Robinson as it has a much better selection and is less crowded than the one on Centre & Negley (which is only a few blocks from my home. This would only incentivize me to do ALL of my shopping outside the city limits.

So you drive an extra hour round trip (through tunnels!) in order to avoid some crowding? That's the craziest thing I've ever heard.

Wednesday, March 17, 2010 1:09:00 PM  
Blogger JRoth said...

By the way:

On the general topic of price elasticity of sodas, I think most of you haven't actually paid much attention. If you buy a case of Pepsi at Giant Eagle, you're paying $0.02/oz (less when it goes on sale every 3-4 weeks). If you buy a 20 oz. bottle at a vending machine (hardly any can vending machines anymore), you're paying $0.0625/oz. (for more! Where's my volume discount?) If you walk into a convenience store for that same bottle, you're paying between $0.075 and $0.09/oz. At that same convenience store, fountain soda is available for between $0.04 and $0.02/oz.

In other words, people constantly pay many multiples of the grocery store price for soda. The idea that a quarter a can is going to create this massive shift in buying habits ("people will drive to the suburbs to do all their shopping so they can save $5 on a case of soda") ignores what we actually get to observe in the existing market.

Furthermore, it's a pernicious myth that producers simply pass taxes on to customers. As the numbers I outline above suggest, there are big profits in soda (even with free refills, fast food places make the plurality of their profits on soda*), which means that retailers have room to eat (a portion of) taxes rather than lose business. In the case of the alcohol tax, a lot of petulant businesses made a point of listing the tax separately on checks; others just added a quarter to the price, kept it a round number, and continued to sell plenty of liquor.

* cite: a good friend who managed a BK

Wednesday, March 17, 2010 1:25:00 PM  
Blogger JRoth said...

And more:

First of all, where are all the bars that went out of business with the liquor tax? I seem to recall an awful lot of red-faced tavern owners who swore it would kill their businesses; I don't recall seeing a lot of actually empty bars (been to East Carson Street lately)? Granted, County vs. City have very different boundaries, and I appreciate the resulting differential impact. But are we ever going to learn from recent events? Business owners scream about every tax and regulation, yet business goes on (smoking ban, anyone?).*

Secondly, it's a given that taxes reduce the consumption/production of the taxed good. So why are you all so committed to low taxes on a product that has no social good (I say this as I drink Mt. Dew; I'm no scold, but I'm honest), while we continue to tax, you know, work? I seem to recall that this was one of the reasons taxing college students was supposed to be bad.

People bitch about inadequate services (brother, can you spare a snowplow?), but have no interest in paying for them. If you want police, firemen, and streetlights (hello, Ft. Collins), then you have to pay for them somehow.

* Granted that there are surely, in the 130 municipalities of Allegheny County, bars that lost business and closed as a result of either or both of these changes. Bars also closed because the owner died and no one could take it over, because no one lives nearby anymore, or because their wings sucked. That's life.

Wednesday, March 17, 2010 1:36:00 PM  
Blogger JRoth said...

Side question: How does this impact diet soda? Do the bottlers spread the tax across their product lines (in which case the effective tax becomes, what, 1/3 less?), or do they permit a stark retail price differential between their products? If so, then presumably a fair number of people will decide to save money and reduce calories by switching to diet sodas.

Wednesday, March 17, 2010 1:39:00 PM  
Blogger C. Briem said...

just one point on the different prices we pay for soda now. A soda in a convenience store is fundamentally a different product than a soda in larger quantity in a super market. So I don't get the point and of course we pay differently for them. Put another way.. a soda is not always a soda. Put more precisely a particular good is characterized by it's location and time among other things.

So I agree in that the 2 cents would have a lot less impact on a fast food purchased beverage than it will in the supermarket... But given it's a flat tax and the revenue is proportional to the volume and not the price what does that say about the potential for this type of tax? I wonder how much of the soda consumed is in larger supermarket purchases than at the convenience store.... and then what impact a tax like would have on those patterns.

the impact of the alcohol tax is worth some more analysis I agree... realize that it was a county wide tax which makes a big difference in lots of ways. interesting question as to whether alcohol or non-diet pop is more a necessity than alcohol. for another day.

Wednesday, March 17, 2010 1:47:00 PM  
Anonymous Anonymous said...

Dear JRoth:

Re your comment:
"So you drive an extra hour round trip (through tunnels!) in order to avoid some crowding? That's the craziest thing I've ever heard."

No, its not crazy at all. My idea of Hell is being shoulder to shoulder with a bunch of grad students at the Centre Ave M.D. Have you ever shopped there?? You can't even stop in an aisle to find something. If you bend down to see something on a shelf you will get hit in the head with someone's cart. The customers, in general, are very rude there. It is far less aggravating to drive to Robinson, especially in the evening when traffic is down.

The Robinson location sells products that are not available in the city location.

Me shopping in Robinson is no less ridiculous than the folks who drive in from WV to shop at Trader Joe's in E.Liberty.

I will add, that I also do major electronics purchases at a Best Buy in Westmoreland County, as I am frequently in Westmoreland and I do not wish to pay the extra 1% tax in Allegheny County.

I will not apologize for being a bon vivant. I also know many other city folks who do the same thing...shop outside the city when they can to avoid the lack of parking, and aggravation factor.

I am not oppossed to all taxes. I am oppossed to any more money being sent to a city government that seems to be incapable of governing.

P.S. Are you Yarone Zober or just an apologist for him? Who else would spew this lunancy?

Wednesday, March 17, 2010 2:25:00 PM  
Anonymous MH said...


Have you tried the Giant Eagle at the Waterfront? It isn't a Market District, but it isn't so crowded either.

Wednesday, March 17, 2010 2:32:00 PM  
Anonymous MH said...

People bitch about inadequate services (brother, can you spare a snowplow?), but have no interest in paying for them.

That's actually what bothers me about this. Instead of trying to get people to pay for services or to do without services, this strikes me as one more attempt to get people to vote to tax somebody else. In effect, it will be heavily regressive. Most of the new revenue devices enacted or proposed (selling the parking garages, tuition tax, soda tax, casino, alcohol) are either designed to raise money without it being called a tax or to tax people who are less likely to vote. It is reasonable politics, but hard to defend as some kind of noble experiment in social welfare when you see the larger pattern.

As for the alcohol tax, I like alcohol better than I like city services. The 10% tax was reasonable. The system where I can’t buy beer and wine in the regular store isn’t. I’ve had no effective way to oppose the latter, so I opposed the former.

Wednesday, March 17, 2010 2:51:00 PM  
Anonymous Anonymous said...


I've shopped at both the Waterfront and the Waterworks Giant Eagles.

I like a shopping experience and I also enjoy specialty items that aren't available at a regular supermarket.

The point of this isn't were is the best place to grocery shop but that if such a tax is imposed it is not difficult for folks to shop outside the city. Many city residents already do, at least, part of their grocery shopping outside of Pgh. Imposition of this tax will only hurt the stability of the city if it means lost jobs at city supermarkets.

I have a wicked Pepsi habit...this would definately encourage me to do almost all grocery shopping outside of the Burgh.

Wednesday, March 17, 2010 2:57:00 PM  
Anonymous MH said...

Shopping outside the city is very common. Driving from Shadyside to Robinson for groceries is bizzare.

Wednesday, March 17, 2010 2:59:00 PM  
Anonymous Anonymous said...


Try the Robinson Market District then report back to me. I have many friends who live in Fox Chapel and even futher away who shop there regularly.

Wednesday, March 17, 2010 3:26:00 PM  
Blogger Grimace said...

The real question with this inquiry is what all these extra taxes are funding? It seems that provision of basic government services has steadily decreased. Where is all this money going?

Wednesday, March 17, 2010 3:35:00 PM  
Anonymous MH said...

Pension hole and debt service. At least it isn't going to failed department stores anymore.

Wednesday, March 17, 2010 3:40:00 PM  
Anonymous MH said...

I realize farm policy is not a major concern of this blog, but I've seen the corn syrup subsidy argument so often that I got to wondering. A reasonable example of the this (which I found via the Wiki article on corn syrup) is this. They seem to be saying that the government helps corn farmers, but not produce farmers, and that this leads to more corn than should be grown. Except most of the help of which I'm aware (paying people not to grow corn, requiring ethanol, boosting exports) should make corn more expensive domestically. And nothing in the report (or on the site of the organization that made the report) seems to specify how the government is keeping corn prices low in any detail. Most everything else in the report is carefully cited.

I suppose the argument is that many corn farmers would go broke without price supports and thus we'd eventually get less corn. But it strikes me as very non-obvious that this would lead to higher corn prices. You could just as easily get lower corn prices as bigger operators, who can profit on slimmer margins, would force down farm income and compete with each other to drop the price. The people who wrote the report want to reinvent U.S. agriculture wholesale, but short of that, I don't see how their argument works.

And, the biggest government impact in making things taste sweet is the high sugar tariff, which raises costs for sweet drinks. Sugar would be cheaper than corn syrup without government action.

Wednesday, March 17, 2010 5:16:00 PM  

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