Mayor raises taxes, prices go up, mayor calls it extortion by the businesses

[Jason Harvestdancer]

Philly Mayor Blames ‘Price Gouging’ for Outrage Generated by City’s New Soda Tax - Businesses are passing along the cost of the tax to consumers, because that's how taxes work. Someone get Jim Kenney an economics textbook.
We should all pitch in and buy the mayor of Philadelphia an economics textbook
The Soda Police Learn a Valuable Lesson about Taxes
Philly beverage tax a case of trickle-down economics

So here's the summary - Due to a new tax, a 5 gallon bag of syrup used to cost $60. The new tax approved by Philly Mayor Jim Kenney adds $57.60 in taxes for each of those boxes of syrup, doubling the price of the syrup. This wasn't a tax imposed at the final sale, where it would be obvious to the customers what is going on. This was a tax imposed at an earlier stage in the process, where any resulting higher prices are supposed to be blamed on the business for being so greedy that they pass costs to customers. The businesses not only increased the prices on the sodas, they posted signs saying why they increased the prices on the sodas. Jim Kenney got mad at the posted signs, saying that the businesses were extorting the customers.

The businesses opposed the tax hike before it passed, and Mayor Kenney says the signs are them still fighting the tax after it has passed. This is real trickle-down economics, regressive taxation. Businesses are charging more for the sodas, and no longer giving free refills, because they cannot afford to do so, and it is the customer who is paying for it all.

So, is it the case that higher taxes discourage an activity so taxed?

 

[Jayjay]

Philly Mayor Blames ‘Price Gouging’ for Outrage Generated by City’s New Soda Tax - Businesses are passing along the cost of the tax to consumers, because that's how taxes work. Someone get Jim Kenney an economics textbook.
We should all pitch in and buy the mayor of Philadelphia an economics textbook
The Soda Police Learn a Valuable Lesson about Taxes
Philly beverage tax a case of trickle-down economics

So here's the summary - Due to a new tax, a 5 gallon bag of syrup used to cost $60. The new tax approved by Philly Mayor Jim Kenney adds $57.60 in taxes for each of those boxes of syrup, doubling the price of the syrup. This wasn't a tax imposed at the final sale, where it would be obvious to the customers what is going on. This was a tax imposed at an earlier stage in the process, where any resulting higher prices are supposed to be blamed on the business for being so greedy that they pass costs to customers. The businesses not only increased the prices on the sodas, they posted signs saying why they increased the prices on the sodas. Jim Kenney got mad at the posted signs, saying that the businesses were extorting the customers.

The businesses opposed the tax hike before it passed, and Mayor Kenney says the signs are them still fighting the tax after it has passed. This is real trickle-down economics, regressive taxation. Businesses are charging more for the sodas, and no longer giving free refills, because they cannot afford to do so, and it is the customer who is paying for it all.

So, is it the case that higher taxes discourage an activity so taxed?

Wasn't that the point? Sounds like the Mayor not only understands economics, he doesn't even seem to know why taxing unhealthy foods is done in the first place.

Edited to add: Indeed he doesn't:

Yesterday Philadelphia became the first major city in the United States to impose a special tax on soft drinks, but as enacted it has nothing to do with reducing obesity, the usual rationale for such levies. Unlike Berkeley, where voters approved a one-cent-per-ounce tax on sugar-sweetened drinks in 2014, Philadelphia will tax low-calorie and zero-calorie beverages at the same rate as regular soda. In fact, the tax of one-and-a-half cents per ounce could perversely encourage consumption of more calories, especially since it does not apply to juice products loaded with naturally occurring sugar.

 

[Jimmy Higgins]

Don't understand his complaint. Raise tax, make something more expensive, less of it is used.... like cigarettes. *shifty eyes*

What I don't understand, however, is how the price on drinks can go up because of the tax hike. Aren't sodas already one of the highest charged items verses the actual cost to produce?

 

[laughing dog]

Of course vendors will attempt to pass on as much of the increase in expense as they can. How successful that will be depends on the willingness of consumers to pay that price. I would be more interested in the price of these sodas in a month or so, once consumers and vendors have a chance to adjust to this increase in expense.

One of the linked articles does give an example of a restaurant owner gouging customers. He admits that he raised the price of a 20 ounce soda by the 30 cents (1.5 cents per ounce). However, he has eliminated free refills and charges 50 cents per refill. If he had been willing to give free refills before this tax and this tax increased the expense of a refill by 30 cents, then the increase in price to 50 cents is "gouging".

 

[Jason Harvestdancer]

Of course vendors will attempt to pass on as much of the increase in expense as they can. How successful that will be depends on the willingness of consumers to pay that price. I would be more interested in the price of these sodas in a month or so, once consumers and vendors have a chance to adjust to this increase in expense.

One of the linked articles does give an example of a restaurant owner gouging customers. He admits that he raised the price of a 20 ounce soda by the 30 cents (1.5 cents per ounce). However, he has eliminated free refills and charges 50 cents per refill. If he had been willing to give free refills before this tax and this tax increased the expense of a refill by 30 cents, then the increase in price to 50 cents is "gouging".

He's a businessman, so even if he was just giving it all away then of course he's gouging. The increase in cost only hits the very final line of sale, and doesn't impact any other costs in any way, such as costs in the entire rest of the supply line. It is just simple stupid greed by the business that they even raised prices to cover the increased cost at all. Before the tax hike, they spent $60 on a bag of syrup, and all the sodas they sold from that bag made $20 profit from which to pay employees, etc, that means they had $80 revenue. They should have been happy to stay at $80 revenue when they now have to pay $120 per bag and take a $40 loss per bag, because businesses are endless wells of money just waiting to be tapped. They didn't want to pay their fair share and are making the customers pay instead.

 

[laughing dog]

Of course vendors will attempt to pass on as much of the increase in expense as they can. How successful that will be depends on the willingness of consumers to pay that price. I would be more interested in the price of these sodas in a month or so, once consumers and vendors have a chance to adjust to this increase in expense.

One of the linked articles does give an example of a restaurant owner gouging customers. He admits that he raised the price of a 20 ounce soda by the 30 cents (1.5 cents per ounce). However, he has eliminated free refills and charges 50 cents per refill. If he had been willing to give free refills before this tax and this tax increased the expense of a refill by 30 cents, then the increase in price to 50 cents is "gouging".

He's a businessman, so even if he was just giving it all away then of course he's gouging.....

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

 

[Tom Sawyer]

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

I'm not following your logic. I'm trying to use your statements to come to the conclusion that the government is evil and the businessman is a hero and am having trouble doing so, therefore there's something wrong with your statement. Could you please rephrase it so that it leads to a sensible conclusion.

 

[Loren Pechtel]

He's a businessman, so even if he was just giving it all away then of course he's gouging.....

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

Except it can be--since they now charge for it it's something they have to keep track of.

 

[Axulus]

He's a businessman, so even if he was just giving it all away then of course he's gouging.....

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

You are ignoring the costs associated with processing the .50 refill transaction. Employee time, cash handling, accounting, receipt paper, etc. Also, people stealing refills without paying for them is not uncommon, a cost which is not captured by the additional 30 cent fee on the initial drink. There is also additional inventory cost/working capital requirements with the higher price, etc. And, who knows, maybe he also decided he wanted a slight profit on refills after having to deal with the additional hassle.

I always find it interesting when some outsider presumes to know more about someone's business and the reasons behind their decisions than the business owner themselves.

 

[ZiprHead]

I'm skeptical. All we have been given are rightwing libertarian site's viewpoints on this and then we're supposed to find the mayor to be ignorant and evil.

If sellers are raising their prices far more than their added expences and blaming the increase on the mayor, then they are not only gouging the consumer but doing it dishonestly. Since none of the links provided gives actual details about what's going on at the consumer level, all we're left with is an incomplete picture of the situation and being asked to make a judgement.

And I know retailers make a ton of money on fountain drinks.

ETA: A five gallon carton of syrup will make 320 12 oz drinks.

 

[Crazy Eddie]

Don't understand his complaint. Raise tax, make something more expensive, less of it is used.... like cigarettes. *shifty eyes*

What I don't understand, however, is how the price on drinks can go up because of the tax hike. Aren't sodas already one of the highest charged items verses the actual cost to produce?

As someone who spent the first 2 years of his working life in a restaurant, I answer that with a resounding HELL YES.

That 5 gallon bag of syrup mixes with carbonated water at about a 1:5 ratio, which means it'll yield between 200 and 250 cups of soda at typical sizes. Restaurants that have soda fountains usually charge about $1.50 for the cups (some charge $2, especially around here), so that 5 gallon bag will produce about $375 of revenue.

Restaurant owners are mad about the price hike because soda fountains are a cheap and easy way to pad your profit margins, especially if your food is terrible and your service sucks. Businesses that people actually WANT to go to don't really have this problem because they make more of their money on, you know, actual food and sales. So I suspect the businesses most guilty of the price gouging are the McDonalds/Wendeys franchises where coke and diet coke are essential for getting customers to choke down their awful food.

 

[laughing dog]

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

You are ignoring the costs associated with processing the .50 refill transaction......

If the only thing that changed is the tax, and the refills were free, please how any of the other possible costs might have changed.

And, who knows, maybe he also decided he wanted a slight profit on refills after having to deal with the additional hassle.

Bingo.

I always find it interesting when some outsider presumes to know more about someone's business and the reasons behind their decisions than the business owner themselves.

I find it depressing that people seem incapable of applying marginal analysis.

- - - Updated - - -

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

Except it can be--since they now charge for it it's something they have to keep track of.

Think about the circular logic there.

 

[Axulus]

You are ignoring the costs associated with processing the .50 refill transaction......

If the only thing that changed is the tax, and the refills were free, please how any of the other possible costs might have changed.

And, who knows, maybe he also decided he wanted a slight profit on refills after having to deal with the additional hassle.

Bingo.

I always find it interesting when some outsider presumes to know more about someone's business and the reasons behind their decisions than the business owner themselves.

I find it depressing that people seem incapable of applying marginal analysis.

- - - Updated - - -

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

Except it can be--since they now charge for it it's something they have to keep track of.

Think about the circular logic there.

I already explianed it to you. There are transaction costs associated with those who wish to purchase a refill, in addition to losses from those who get a refill without paying for them.

 

[dismal]

make something more expensive, less of it is used

Wow, just like with the minimum wage and stuff.

 

[laughing dog]

If the only thing that changed is the tax, and the refills were free, please how any of the other possible costs might have changed.

And, who knows, maybe he also decided he wanted a slight profit on refills after having to deal with the additional hassle.

Bingo.

I always find it interesting when some outsider presumes to know more about someone's business and the reasons behind their decisions than the business owner themselves.

I find it depressing that people seem incapable of applying marginal analysis.

- - - Updated - - -

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

Except it can be--since they now charge for it it's something they have to keep track of.

Think about the circular logic there.

I already explianed it to you. There are transaction costs associated with those who wish to purchase a refill, in addition to losses from those who get a refill without paying for them.

The only additional transactions costs that have changed are those involved with accepting the 50 cents. No way in this modern day and age those are 20 cents per refill.

 

[Axulus]

If the only thing that changed is the tax, and the refills were free, please how any of the other possible costs might have changed.

And, who knows, maybe he also decided he wanted a slight profit on refills after having to deal with the additional hassle.

Bingo.

I always find it interesting when some outsider presumes to know more about someone's business and the reasons behind their decisions than the business owner themselves.

I find it depressing that people seem incapable of applying marginal analysis.

- - - Updated - - -

Try to pay attention to the facts. The restaurant said he increased the price of a 20 ounce soda by 30 cents because his expense of that soda rose by 30 cents. That means the expense to him of a refill rose by 30 cents. Yet he increased the price of a refill by 50 cents. That 20 cents difference cannot be the result of the tax. I was clearly referring to the refill not the price of the first soda.

Except it can be--since they now charge for it it's something they have to keep track of.

Think about the circular logic there.

I already explianed it to you. There are transaction costs associated with those who wish to purchase a refill, in addition to losses from those who get a refill without paying for them.

The only additional transactions costs that have changed are those involved with accepting the 50 cents. No way in this modern day and age those are 20 cents per refill.

Show your work. 30 seconds of employee time at $12/hr (including applicable employment taxes) will already cost 11 cents by itself. Please demonstrate that .09 is unreasonable to cover all the other things I mentioned (increase cost of working capital, other incidential transaction costs, costs from theft by those who help themselves to free refill, other hidden costs such as spillage, possible business taxes based on revenue, etc).

You seem to be an expert on the matter with a high degree of confidence, so how did you calculate all these costs, and what number did you come up with?

 

[laughing dog]

Show your work. 30 seconds of employee time at $12/hr (including applicable employment taxes) will already cost 11 cents by itself. Please demonstrate that .09 is unreasonable to cover all the other things I mentioned (increase cost of working capital, other incidential transaction costs, costs from theft by those who help themselves to free refill, other hidden costs such as spillage, possible business taxes based on revenue, etc).

The 30 seconds of employee time was occurring before charge - that is not a marginal cost. All the other things you mentioned are either not marginal costs (working capital) or not demonstrated to exists (additional losses to due theft of soda).

You seem to be an expert on the matter with a high degree of confidence, so how did you calculate all these costs, and what number did you come up with?

You continue to confuse average with marginal cost.

 

[Axulus]

The 30 seconds of employee time was occurring before charge - that is not a marginal cost. All the other things you mentioned are either not marginal costs (working capital) or not demonstrated to exists (additional losses to due theft of soda).

You seem to be an expert on the matter with a high degree of confidence, so how did you calculate all these costs, and what number did you come up with?

You continue to confuse average with marginal cost.

False. When someone wants a refill, they must go to the register and have the employee ring up the $.50 transaction. Theft of soda (not paying for a refill) is an issue because it is not fully compensated for with the .30 increase on the initial drink, nor does .30 fully account for potential spillage on the refill.

 

[laughing dog]

The 30 seconds of employee time was occurring before charge - that is not a marginal cost. All the other things you mentioned are either not marginal costs (working capital) or not demonstrated to exists (additional losses to due theft of soda).
You continue to confuse average with marginal cost.

False. When someone wants a refill, they must go to the register and have the employee ring up the $.50 transaction.

First, how do you know this? And second, even if it is true, the employee at the register is a fixed cost not a marginal cost.

 

[Axulus]

False. When someone wants a refill, they must go to the register and have the employee ring up the $.50 transaction.

First, how do you know this? And second, even if it is true, the employee at the register is a fixed cost not a marginal cost.

False - having more people in line for refills will tend to increase line length, which is either compensated for with a slight increase in average employees during busy times or longer lines, which leads to loss of customers due to too long of wait times at the margin.

Second, how else is the transaction on the refill supposed to occur?

Additionally, the initial price of the soda was x - .30 with an option to buy a refill for .00. Now the price increased to x with an option to buy a refill for .50. It is obvious that the refill used to be sold below marginal cost, compensated for by the mark-up on the initial purchase. You need to demonstrate that x plus an option to purchase a refill at .50 leads to higher expected profits than before, given the taxes and potential to not collect on that .50 given theft, plus transaction costs.