A Taxing Blog

Friday, September 05, 2003
Marginal Revolution  
Marginal Revolution, a new blog by econprofs Tyler Cowen and Alex Tabarrok at George Mason. I'm not always in agreement with economists, but I find I learn much more from reading econ blogs than political blogs. This might be because more political arguments are already familiar to me but econ arguments --esp. when they are counter intuitive -- might not be.

Wednesday, September 03, 2003
Latte Tax vs. Fat Tax  
Here's a NYT story on a proposed ten cent tax on espresso drinks in Seattle.

Unlike the Fat Tax, the tax on espresso drinks is not designed to change behavior. In fact, the design of the espresso tax rests on the presumption that people will not switch to close substitutes in order to evade the tax. That presumption actually seems realistic, since most people who order a $3.50 capuccino will not blink at paying $3.60 and suddenly decide they want a drip coffee.

It does, however, seem like a stupid and inefficient way of raising revenue. The projected revenue is just $6 million annually, at best; I'd guess that Starbucks alone will spend close to $1 million changing their cash registers, training workers, dealing with accounting complexities and other compliance costs. Plus, the tax is likely to cost Seattle some goodwill with its smaller coffee companies as well.

The tax is short-term politically expedient, as many latte-sipping types also are too rich to really complain about such a small tax, and we're talking about a luxury item. (Personally I consider caffiene a medical necessity, but one can always drink Maxwell House in a pinch.)

And the cause is good -- revenue would be dedicated to social programs like children's education that have suffered from recent budget cuts. But who's to say that when new revenue comes in, some of that new revenue will be directed towards the programs? Or will the local politicians, seeing that the espresso tax is funding the children's programs, divert new revenue to other projects?

Taxing particular commidities and luxury items makes sense when we want to alter behavior (like cigarette taxes) or when the items are truly extravagant and compliance costs are relatively low (like a tax on yachts). Given how many people -- from all walks of life -- that I see with espresso drinks, the tax is neither very progressive nor very efficient. Seattle would be better off swallowing the bitter pill of raising tax rates slightly or cutting budgets further rather than taxing the bitter coffee drink that made it famous.

Query: would a ice blended mocha get double taxed in Seattle under the espresso tax AND Strnad's "Fat Tax"?

Tuesday, September 02, 2003
Fat Tax paper  
I haven't read it yet, but here's Strnad's Fat Tax paper.

Two editorials in the WSJ that touch on tax issues. The first discusses the state of taxation in California and the other touches briefly on Ireland's consideration of a "fat" tax (I once saw Professor Jeff Strnad do a presentation on fat taxes which was quite interesting but I don't see the paper anywhere online).

Eugune Volokh, in a recent post, discusses taxpayers and the Alabama ten commandments issue.

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