Fat and Foolish, Taxing Credulity

Well, you didn't expect that we would continue in an effusive manner in reference to Governor Paterson's budget just because, after much dithering, he decides that, yes, he will enforce the taxation law against Indian cigarette dealers? Of course not, not when he the governor foolishly continues on his putative health kick by once gain proposing his fat tax on soda. As the NY Times reports: "His plan also assumes that there will be a significant recovery this year in the state’s tax collections and relies on a number of recycled proposals. A new tax on sugared sodas, $1.28 per gallon, would yield $465 million, similar to a proposal that Mr. Paterson made last year but dropped amid resistance from the Legislature and companies like PepsiCo Inc., which is based in Purchase, N.Y."

Just what the bodegas in NYC need, another tax that will either dampen demand for one of their staple products, or stimulate further cross border sales that are already at high levels because of the state's bottle law. And, just like the calorie posting mishogos that is the pet scheme of the mayor, the soda tax will raise costs but will have little or mo impact on the health of overweight New Yorkers.

But make no mistake about it, the tax is also regressive, and for those low income New Yorkers-some of whom may be quite trim indeed-who like to drink a sweet soda it will cost more at a time when money, not to mention work, is scarce. But leave it to the Times editorialists-most of whom we'd guess haven't had a regular Coke or Pepsi in years-to immediately demand that Paterson fight like hell for this tax.

As the paper tells us: "The new taxes would include a $1-per-pack addition to the $3.75 state tax on cigarettes and a penny-an-ounce levy on colas and other sugared beverages. The revenue from the cigarette tax is expected to collect $218 million a year, but the far more controversial soda tax could bring in as much as $465 million a year. Both are useful ways to raise money, especially since the governor has promised to use the proceeds for health care. But he has proposed a soda tax before, then caved, after orchestrated industry protests across the state. This time, he should resist and keep the tax."

Did they say another cigarette tax? And did they do so without even mentioning the governor's Indian tax collection proposal? Indeed they did. Which only goes to demonstrate how out-of-touch these folks are with any street level reality. In our earlier post on the governor's revocation of the so called letter of forbearance-the one that allowed the Indians to create a lucrative black market-we didn't weigh in on his other proposal to tax cigarettes once gain.

This is a good time to do so-because until the governor actually walks the walk on collecting the Indian cigarette taxes any additional taxes that are added on to the product is simply more black market moolah. But how would the Times editorialists know this. Maybe they should refer back to Stephanie Saul's great reporting in October of '08?

Here's Saul's money quote: "Combined, the city and state are losing more than $1 billion a year in tax revenue as a result of bootleg cigarettes distributed through New York’s reservations, Mayor Michael R. Bloomberg’s office said on Monday. The losses to the city alone would pay the annual salaries and benefits for more than 3,000 schoolteachers, the mayor’s office said."

So if the Indian loophole isn't closed promptly, then the new tax is totally counterproductive-as well as harmful to the small stores that apparently don't have any advocates in the rarefied Times atmosphere. And isn't it strange that the paper can wax eloquently on the governor's martial arts proposal-inveighing against legalizing ultimate fighting as a sport-yet remains lock jawed on a criminal black market that robs the state of over a billion dollars a year?

Typical Times. Advocate taxes that will hurt poor people and the stores that serve them; but stay silent on a massive scofflaw operation that prevents billions of taxes from actually being collected-and also hurts small stores in the process. What kind of animus-not to mention policy myopia-permeates the august nether regions of that paper?

So there is much that needs to be done before this budget is adopted. The Times is right to call on the governor to fight harder this time-but misguided as to what issues he needs to fight hard. We should shelve both of his tax proposals until the tax revenue stream from Indian cigarette sales begins to come in. In our estimate, that money will likely eclipse any estimated revenues from the two proposed levies-making for good public policy that does no harm to businesses that have been treated badly by government neglect in enforcing existing law.