Soda Tax Silly, Not Needed

Santa Fe’s City Council is considering separate proposals to levy a new two-cent tax on soda and raise the gross-receipts tax by two half-cent increments. A portion of the tax increases would be used to expand the city’s parks and open spaces while revenue from the increased gross-receipts taxes would be split between the Children and Youth Commission and the Human Services Committee.

Each tax hike is being promoted under the banner of “for the children,” a tried and true way to garner widespread support for misguided policies. But why are each of these policies misguided?

For starters, the soda tax is unfair. It unnecessarily targets one group of people — soda drinkers — to pay for something from which most of them will never benefit.

Obviously, the councilors now targeting soda believe that soda is “bad,” and that people should drink less of it. This is nothing new, as politicians have long used taxes in their attempts to make us better, more moral people. Why do you think taxes on beer and cigarettes are so high?

If the Santa Fe Council wants to stop childhood obesity, then why not provide real incentives for kids to lose weight? Weigh the children every month when they are in school. For each pound they are overweight, as determined by the National Institutes of Health, they or their parents would be “taxed.”

The “Weight Tax” could be paid that day at the school nurse’s office where dietary and health literature and counseling could be given the child. There’s no reason to tax the rest of us who drink an occasional soda for the overindulgences of a few. Besides, soda is not the only “bad” food out there. Burger taxes, pizza taxes, and ice cream taxes can’t be far behind.

On the matter of the gross-receipts tax: economically speaking, it is this one-cent increase which will really inflict harm on Santa Fe’s economy. Santa Fe already has the heaviest gross-receipts tax burden of any major (25,000 people or bigger) city in New Mexico, a one-cent increase would give the city an astounding 8.875 percent gross receipts tax rate. The new rate would be an astounding 25 percent greater than the rate charged in Albuquerque.

While 8.875 percent might sound like just another number with little meaning, consider that Tennessee is the only state with a higher average sales tax rate within its borders. Unlike New Mexico, however, Tennessee has no income tax. But even in this context, Santa Fe’s gross-receipts tax rate is misleading because New Mexico’s gross-receipts tax is different from sales taxes in other states.

Unlike other states’ sales taxes, the gross-receipts tax covers everything, including services, and business-to-business transactions are also taxed, whereas other states only tax final-consumption goods. Lastly, the entire proceeds of each transaction are taxed in New Mexico. Some relief for New Mexico’s goods-producing industries comes in the form of a deduction for the cost of raw materials. Only a few politically favored industries receive exemptions from the tax under state law.

What does this all mean? While some wealthy outsiders and tourists will have no problem paying a little bit more for a can of soda or a meal in one of Santa Fe’s fine restaurants, it is the average business person and middle- or low-income resident of Santa Fe who will bear the brunt of these tax hikes. But even Santa Fe’s tourist industry might eventually suffer from high taxes. Santa Fe’s tax burden might cause tourists and part-year residents to look elsewhere.

Holt Priddy is a Policy Analyst with the Río Grande Foundation, a nonpartisan, tax-exempt research and educational organization promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.