TCS Daily

Slow Roasted

By Jeremy Lott - September 15, 2003 12:00 AM

Our story thus far: A group of early childcare activists teamed up with local daycare providers to gather signatures to put the so-called latte levy on the ballot in Seattle. So-called because they wanted to add a surcharge of a dime to every espresso-bearing beverage sold within city limits, to fund daycare and preschool for poor young children. When the latte tax lobby failed to gather enough signatures in time to force the vote onto the ballot in the fall of last year, the city council chose to delay the vote on Initiative 77 until this September. On the 16th, voters will decide whether or not to undertake a massive new march of dimes, at taxpayer expense, of course.


The latte levy has worked the normally mellow Seattleites into a fever pitch. There have been several tax protests, including a rendition of the Boston Tea Party at the south end of Green Lake (favorite chant: "What do we want? Cof-fe! How do we want it? Tax free!"). Proponents claim the initiative is "for the children" and would "only" wring an extra dime out of every cup of espresso coffee, and, in a sense, they're factually correct. However, in addition to the moral and regional arguments against the measure, there are also three practical objections that have not received enough attention.


The first objection, concerns the efficacy of preschool and daycare. The text of I-77 contains a startling, not to say incredible, claim: "[F]or each  dollar invested per child at risk of school failure, there is a potential savings to taxpayers of seven dollars in special education, crime and public assistance costs." Though theoretically grounded the findings of the High/Scope Educational Research Foundation, the drafter must have known this one was a stretch. Thus the "potential" savings and the use of fungible terms (e.g., Who counts as "at risk"?; Why would special education money be considered apart from dollars invested?).


"They can't substantiate that," says Lance Izumi, educational director of the Pacific Research Institute. "First of all, preschool is a program that does not have universal support. Whether it helps kids or not is an open question." Indeed, research by Georgia State University looked at the educational achievement of the state's young students after the legislature had passed universal preschool funding. Overall, there were no discernible differences in achievement between the preschooled children and those who went without.


Second, if preschool did make an important difference, I-77 still wouldn't make a huge dent. Supporters expect the levy will raise $7-10 million a year, but those figures are somewhat optimistic, to say the least. The city of Seattle estimates a much smaller windfall ($1.8-3.4 million). And the city's estimate may be over-optimistic yet, because it doesn't factor in things that could change espresso drinkers' buying patterns


To wit, drinkers with limited pocket change may prefer one venti to two talls. For those who can choose between buying espresso coffee in Seattle or in the surrounding suburbs, the financial incentives will shift ever so slightly. Since drip coffee is a) cheaper and b) not subject to the espresso tax, well, there's more than one way to deliver the drug of choice of tens of thousands of Seattleites. Also, for reasons I'll explain shortly, there may soon be significantly fewer outlets in the Emerald City at which lattes may be purchased, further crimping sales and tax revenues.


Purely attitudinal factors may also work to drive down latte tax revenues. In an earlier digression on this topic, I joked about the "angry latte sipping male" demographic. But the reality of mass tax protests in Seattle is quite startling. A lot of latte drinkers and coffee shop owners are mad as hell and will be very, very reluctant to fork over the dime per cup that the referendum requires.


Finally, the compliance costs for this sort of tax are likely to be substantial. The latte tax applies to any establishment with revenues of $50,000 a year. Shops would have to track espresso sales separately and report to the city on a quarterly basis. In many cases, to track such sales would require the purchase of new technology. For small stands, or for stores that only sell lattes on the side, there would be a great incentive to stop serving espresso-laden products, which would reduce tax revenues further.


But don't take my word for it, the left wing alternative weekly The Stranger also came out swinging against the initiative. As the editors explained:


"Sure, the big boys like Starbucks could afford to impose, collect, and track a dime-a-cup surcharge on the drinks they sell without undue hardship. But for the small players, the mom-and-pop independent coffeehouses that dot the city, the imposition of this tax would in our opinion impose an enormous administrative burden. Frankly, it's goofy ideas like this that give liberalism a bad name."


Jeremy Lott is assistant managing editor of The American Spectator.


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