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Against the Soda Tax

New "soda tax" measures show just how narrow the liberal vision has become.

On Thursday, Philadelphia became one of the first cities in the country to pass a “soda tax,” and many Democratic officials and liberal pundits rejoiced. Finally, they argued, progressives had a new revenue stream to fund much-needed social programs.

But rather than being a progressive victory, the soda tax shows just how far liberals’ aspirations have fallen — and just how shortsighted their political judgment has become.

The Bloomberg Effect

Dozens of cities and states have considered surcharges on sugary beverages before. Michael Nutter, the predecessor of current Philadelphia mayor Jim Kenney, twice tried to institute a soda tax.

In 2014, 55 percent of San Franciscans cast ballots in favor of a city soda tax, but the proposal fell short of the required two-thirds majority. Proponents were more successful in Berkeley, California that year, securing the country’s first soda tax by a three-to-one margin.

Soda tax supporters in California framed the tax as a weapon against childhood obesity, a pitch that clearly resonated with some voters but also carried a strong class and racial bias.

Sugar-sweetened soft drinks are disproportionately consumed by the poor and people of color, making accusations of “nanny state” elitism impossible for proponents to avoid.

Providing grist to critics, billionaire Michael Bloomberg — the former New York City mayor already known for his widely mocked attempt to ban “Big Gulps” in the Big Apple — contributed more than half a million dollars into Berkeley’s local soda tax election.

Kenney decided to put a new spin on the soda surcharge when he proposed it in Philadelphia. Rather than pitching it as a way to “nudge” the poor into drinking less soda, Kenney linked the tax to a popular progressive measure: universal pre-kindergarten.

But if Kenney’s rebranding largely allowed him to avoid the “Bloomberg trap,” as Reuters put it, he still needed Bloomberg’s money. The media mogul obliged, pouring in $1.6 million to the pro-soda-tax campaign.

In addition to Bloomberg’s riches, Kenney benefited from the Enron-and-hedge-fund fortune of Houston billionaires John and Laura Arnold.

The Democratic mayor’s courting of out-of-town billionaires raised some local eyebrows. “Kenney’s supporters say that that funding was needed to counteract the deep pockets of the soda industry. That may be true, but what will Kenney now owe those big donors?” Philadelphia magazine rightly wondered. (One guess: anti-union education reform, a cause near and dear to both Bloomberg and the Arnolds.)

Potential favors notwithstanding, the progressive sheen of universal pre-K and the largesse of billionaire supporters was enough to make Philadelphia the biggest city to enact a soda tax.

Loopholes

But the measure’s success doesn’t mean the soda tax is smart politics or policy. While Kenney was quick to cite polls showing that most Philadelphians supported taxing sugary drinks, the US electorate remains deeply divided about a surcharge on sugary beverages, even in its most ideal form.

And soda taxes are always far from ideal.

Thanks to the inherent regressivity of any sales tax and the demographics of soft drink consumption, the soda tax hits the poor hardest. Even the ubiquitous use of “soda tax” as the shorthand for a fee on sugary beverages hints at the tax’s unfairness.

While low-income people’s fizzy drinks are getting socked with taxes, most of the sugar-laden beverages favored by the upper middle-class and the rich are conspicuously exempt.

In Philadelphia, drinks that are at least 50 percent juice are excluded from the 1.5-cent-per-ounce fee. The bottled smoothies that line Whole Foods’s shelves? Tax-free, even when they contain more sugar than a Pepsi.

Beverages that are more than 50 percent milk are also exempt, a loophole big enough to drive a tanker truck full of venti white-chocolate mochas through.

And beverages to which the buyer adds sugar — or even asks an employee to add sugar — aren’t covered by the tax either. (Legislators must’ve forgotten to add the asterisk to the Philadelphia bill’s official title: “Sugar-Sweetened Beverage Tax.”)

And, it almost goes without saying, foods with loads of sugar (or fat, or cholesterol, or sodium) are exempt. Cronuts and crème brûlée remain untouched by the tax man.

Nor is the complexity and capriciousness of Philly’s tax unique. The California cities’ proposals were perhaps even more convoluted.

But what about universal pre-K? When you use regressive taxes to pay for social spending, the argument goes, the results are still usually progressive.

After all, European countries with less income inequality have tax systems that are about as progressive, or sometimes even less progressive, than the United States’. They reduce inequality by taxing everyone more in order to fund generous universal social programs.

The United States, many liberal wonks and sympathetic Democrats argue, should follow suit. This means not only pursuing soda taxes, but also implementing an Internet sales tax and a national consumption tax.

But the comparison to Europe is misleading: the tax and spending systems in countries like Sweden were developed over decades, in political contexts completely different from that of the United States.

In the United States, regressive taxes have rarely been an effective instrument for progressive ends.

As sociologists Katherine Newman and Rourke O’Brien show in their book Taxing the Poor, the states with the most regressive tax systems tend not to have generous social programs — usually the opposite holds.

That’s because Republicans are dedicated to both shifting the tax burden downward to the poor and slashing the social safety net.

And, as both the actions of GOP governors and the words of conservative activists and legislators make clear, the Right plans to use any money raised by new regressive taxes to fund further tax cuts for the rich —not progressive social programs.

Perhaps the only example of a progressive program in the US successfully funded by regressive taxes is Social Security. Yet there’s nothing magical about the burden of the Social Security payroll tax.

Indeed, making the payroll tax more progressive is overwhelmingly supported by the public. Universality, not regressivity, is the key to Social Security’s enduring popularity.

Even worse, Kenney’s linking of the soda tax to universal pre-K was little more than rhetorical. Whereas the Social Security Act of 1935 permanently tied the payroll tax to the pension program, the text of Philly’s bill says nothing about pre-kindergarten.

In fact, even before the Philadelphia City Council approved the bill, it became clear that less than half of the soda tax’s revenue would go to pre-K.

“A funny thing happened on the way to City Council’s expected approval of Mayor Kenney’s sugary-drinks tax for pre-K: It ceased to be a sugary-drinks tax for pre-K,” the Philadelphia Inquirer quipped.

More progressive sources of revenue were available. Some of Philadelphia’s city council members, for instance, recommended a tax on all beverage containers and a levy on so-called “ride-sharing” services like Uber.

And rolling back the tens of millions of dollars in tax abatements and incentives handed out to Comcast and other major business also would’ve been a fine place to find revenue to fund universal pre-K.

Instead, lacking any statutory connection to universal pre-K, Philly’s soda tax — like all regressive taxes earmarked as general revenue — could easily become a pool to provide tax cuts for the rich or corporations, should any future Republican or austerity-minded Democrat wish to redirect the money.

“Progressive Values”

Earlier in the primary campaign, Hillary Clinton praised the soda tax as beneficial to “working families.” Bernie Sanders, meanwhile, declared his opposition to funding universal pre-K by soaking the poor.

“At a time of massive income and wealth inequality,” Sanders argued, “it should be the people on top who see an increase in their taxes, not low-income and working people.”

New York magazine’s Jon Chait denounced Sanders’s opposition as crypto-conservatism, while articles in the Nation and Mother Jones questioned why Sanders was opposing “progressive values,” as the latter piece put it.

But Sanders was right.

As is too often the case, many Democrats and liberal pundits seem to have shunted aside considerations of long-term fairness and political viability in favor of a flawed short-term technocratic Band-Aid.

The convoluted nature of a soda tax like Philly’s only adds to the complex “kludgeocracy” of the American government, which breeds antigovernment cynicism.

If liberals really wanted to get serious about using taxes to curb sugar consumption, the least they could do is tax all sugar equally (which even the godfather of the soda tax, Robert Lustig, agrees would be fairer and more effective). Instead, the least powerful members of the Democratic base are being singled out for higher taxes.

That’s a shoddy foundation for left politics. Progressives must fight to expand the welfare state and push for fairer taxation at every turn.

They should work to end the regressive race to the bottom whereby cities and counties dole out more than $80 billion per year in tax abatements and subsidies to favored businesses.

They should push to make the federal tax system much more progressive, as Sanders did in his tax plan. And they should press for the reenactment of federal revenue-sharing with states and localities.

What they shouldn’t do is hit the very constituencies they should be mobilizing.

If the GOP is committed to regressive taxes and regressive spending, and the Democrats are willing to accept regressive taxes for progressive spending, the ultimate result is bound to be regressive. And social-democratic goals are bound to fizzle.