Better Booze Taxes, Worse Soda Taxes

Derek is making some good points here about sin taxes, but wanted to add two notes about taxes on alcohol and taxes on sugary beverages, since the Senate Finance Committee is on the verge of trying to increase them. (Or, in the case of sugary beverages, introducing them for the first time.) If we're going to tax booze and soda, what's the best way to do it? And what will we have left to drink?


Matt Yglesias has two suggestions for improving the tax on alcohol that I think are interesting: First, why not index the tax to inflation? Most sin taxes are nominal fees per unit of sin, but the real-dollar value of those taxes erodes over time. Second, why not tax the alcoholic content of beverages, and not the specific beverage itself?

The first suggestion is really a hardy perennial of tax policy debates. Inflation-indexing saves you the trouble of updating the tax. But it also makes it harder to reduce the size of the federal government -- since you would have to actively change the tax, rather than passively let it erode -- or scrap the tax if it turns out to be bad policy. I don't think taxes on alcohol are bad policy, so the second concern doesn't keep me up at night. But the size of the federal government does. (Well, almost.)

But taxing the sinful content rather than its form -- the message rather than the messenger -- strikes me as a no-brainer. It must be more efficient to go after the substance you want to discourage. Fortunately, when I read the Senate's policy recommenations on this topic, I found out that's exactly what they had in mind: "imposing a uniform tax based on the alcohol content contained in the product."

Unfortunately, this isn't what they have in mind for sweetened beverages Actually the Senate Finance Committee proposal seems fairly terrible:

The proposal would impose a Federal excise tax per 12 ounces of sugar-sweetened beverage. Sugar-sweetened beverages under the proposal would include a variety of carbonated and uncarbonated beverages, such as nondiet soft drinks, fruit and vegetable drinks, functional drinks such as energy and sports drinks, iced teas and iced coffees, and flavored milk and dairy drinks.

But doesn't this mean Vitamin Water will be taxed at the same rate as Mountain Dew? Wouldn't that be like taxing twelve ounces of Bacardi at the same rate as twelve ounces of Bud Light? I am all for taxing unhealthy foods, but I still agree with the old Kevin Drum suggestion of taxing the sweeteners, not the beverage.

Refreshing Belgian beer courtesy of Wikimedia