Uncooperative Radio: The Soda-Pop Taxers Are Back

Sunday, May 17, 2009

The Soda-Pop Taxers Are Back

With each passing day, the tax policies of the Obama administration and congressional Democrats look more like Herbert Hoover’s Revenue Act of 1932, one of the most infamous pieces of legislation in U.S. history. The announcement from Senate Democratic leaders this week that they are considering an excise tax on soft drinks — a piece of the 1932 act that almost no one expected to see — is one of many ominous similarities.

Excise taxes like this were everywhere in 1932; they brought in more than half the Revenue Act’s money. This was in part the result of a compromise between congressional supporters of a national sales tax and an administration that preferred an expanded income tax. But the thinking at the time was that the only way to generate a big revenue increase in the face of severe economic weakness was to collect small sums across millions of transactions made by Americans of all income levels. Hoover also needed this revenue increase to make good on his promises to launch new economic programs and modernize government.The conditions are much the same today, between the poor state of the economy and President Obama’s desire for “stimulus” (in 1932 they called it “relief spending”) and a $1.2 trillion health-care overhaul. So in some ways it’s not surprising that our policymakers have arrived at similar solutions. Yet since all Americans pay the same amount per given transaction, excise taxes become more punishing for the poor — especially when the poor consume more than the average amount of a taxed good, as is the case with soda.

The potential damage to those who choose to drink soda is staggering. The Democrats have yet to announce precise numbers, but late last year the Congressional Budget Office estimated that a three-cent tax on each 12-ounce serving of soda could raise $24 billion over four years. (Hoover’s soda tax brought in a mere $7 million.)