Friday, January 2, 2009

Things go better with Coke?

Forty years after Coca Cola published this classic ad suggesting that your taxes would be less taxing if you drank a Coke while filling out your 1040, the governor of New York is proposing an 18% tax on Coke and other sugary sodas (in addition to the regular sales tax that already applies to such products, which is 8% in Schenectady County, and up to 9% in other parts of New York State.)

The soda tax is controversial and unpopular with many New Yorkers.

The fact remains, however, that New York State is facing a huge budget shortfall due to the Wall Street meltdown and general economic slowdown, which has dramatically cut state revenues. Unlike the Federal government, the state can't print money, and it faces a state constitutional requirement to balance its budget.

Many economists have suggested that increasing state income taxes on the wealthiest New Yorkers is a better idea, but Governor Paterson has resisted that idea, saying it would drive millionaires and the jobs they might create out of the state.

Taxing beverages is an old and venerable practice that goes back much farther than the income tax. (Remember the Whiskey Rebellion? Or the tea tax that led to the Boston tea party? Or the "revenooers" chasing the "moonshiners"?)

What makes beverages such a tempting target for taxes? And what the policy pros and cons of using soda as a tax base vs. income as a tax base? These are among the topics we'll discuss in the class.

Talking about taxes on Coke vs. taxes on income is a great way to illustrate many of the core public finance concepts that will recur throughout our class.

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