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Commentary

Let’s Can Voinovich’s Soft Drink Tax!


     
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ATHENS, OHIO -- Governor George Voinovich's soft drink tax proposal -- reinstating the tax repealed by voters last November -- clearly illustrates his lack of respect for voters who legitimately desire to spend their own money as they best see fit. The soft drink tax has been a pet project of Governor Voinovich. For the 1993 budget, he crafted a package of tax increases that included a levy on the syrup used to make soft drinks. That tax had a very troublesome dimension to it. On the basis of the court decisions that followed in its wake, it appeared that the door to the taxing of food at the wholesale level, and possibly on food packaging, had been opened. This is contrary to the spirit of the Ohio Constitution, which prohibits the taxing of food consumed at home, a provision the courts interpreted as applying only to retail sales of food products.

Ohio voters repealed by wide margin the existing soft drink tax by amending the state constitution last November. The amendment also extended the prohibition on the taxing of food for home consumption to the wholesale level and its repackaging. The ballot measure was instantly popular. Throughout the campaign, the amendment showed a two- to three-to-one margin of support, despite the Governor's strong opposition. When the votes were counted, the amendment carried by a margin of two to one.

The economic case for eliminating "excise" taxes, such as the soft drink tax, is powerful. These taxes are largely passed on to consumers in the form of higher prices. As the Governor's press secretary, Michael Dawson, explained in August in 1994, "Every tax is ultimately passed on to consumers. There is no such thing as a consumerless tax."

In addition, excise taxes are a highly inefficient method of taxation, one that leads to significant reductions of output and consumer satisfaction. And soft drink taxes, in particular, are regressive and punitive to those least able to bear them. These taxes would fall disproportionately on lower income families and young people, who consume relatively greater amounts of soft drinks.

The repeal of the soft drink tax means a loss of revenue to the State of Ohio of about $65 to $70 million a year. Given that the State is currently running a surplus approaching a billion dollars by the end of the fiscal year, the tax could hardly be justified on fiscal grounds.

Why then was this method of taxation proposed in the first place? Probably because Ohio's political leaders felt that there is something frivolous about soft drinks that made them a vulnerable target for the tax collector. They would single out soft drinks as a particular food product for punitive treatment, claiming that such products are not "politically correct" for consumption. But obscure excise taxes are not the most honest means for social engineering. And when given the chance, as in November, voters overwhelming reject being cynically manipulated like puppets.

Ohio's budget surplus, the soft drink tax's economic harm and its unpopularity should put the Governor's reaction to the November election in proper perspective. With respect to his own reelection by an overwhelming majority, Voinovich's attitude seems to be that the voters were wise, far-sighted, intelligent citizens who had rendered their verdict in the noblest traditions of representative democracy. Yet, he has repeatedly claimed that those same voters, aware of his opposition to the repeal of the soft drink tax, somehow were mindless sheep, bedazzled and confused by the slick television ads and promotional campaigns financed by vested interest groups, when they chose to repeal the soft drink tax by almost the same margin by which he won reelection.

Voinovich's proposal is neither politically nor economically justifiable. So why is the Governor eager to misread November's message? He simply wants more public revenue under his control and sees excise taxes like the soft drink tax as a means to that end, despite enormous voter opposition. Like the tax repeal in November, an Ohio balanced budget amendment or a three-fifths requirement for revenue hikes would further tax Voinovich's tax-and-spend mentality.

Only five other states in the United States now impose a special excise tax on soft drinks. Three states have repealed the tax within the last three years, and at least two others may do so this year. If Governor Voinovich is deaf to Ohio voters, perhaps one of the defeated Democratic governors can tell him why the soft drink tax is both bad policy and bad politics.


Lowell E. Gallaway is Professor of Economics at Ohio University and and co-author of the award-winning Institute book, Out of Work: Unemployment and Government in Twentieth-Century America.






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