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Junk-Food Tax Will Feed Puerto Rico’s Black Market

By: Frank Worley-Lopez - Apr 28, 2015, 8:03 pm

EspañolDrug dealers and criminal organizations in Puerto Rico will soon have a whole host of new products to sell: junk food. In an ongoing attempt to avoid fiscal reality and skirt spending cuts, the administration of Governor Alejandro García Padilla is quietly trying to pass a new tax on food it deems “bad for you.”

Puerto Rico is set to impose a tax that could double the price of "junk food" items. (Flickr)
Puerto Rico is set to impose a tax that could double the price of “junk food” items. (Flickr)

A new tax reform under consideration in the legislature (which also includes a 16 percent VAT hike) includes a provision to tax junk food.

This sort of sin tax isn’t new: they’ve been added to alcohol in the past, but the best known and biggest sin taxes are those levied on cigarettes.

Nevertheless, the new junk food tax is likely to affect a greater number of people than previous fiscal kickbacks for the state.

It could increase the cost of a two-liter bottle of coke from US$0.89 to $2.00, an increase of over 100 percent increase. More worrying is the fact that move follows recent plans to fine the parents of obese children.

As I’ve said before, Puerto Rico doesn’t have a revenue problem: it has a spending problem. It also has a need to control everything and everyone problem. The fix Puerto Rico needs is to cut spending, not raise revenues wherever it can.

Instead, let me spell out my version of tax reform that will actually make life easier for everyone. And just for the record, as a libertarian, I hate all taxes: but I despise stupid taxes.

Getting the Tax System in Shape

First keep a business and self employment profit tax, flat income tax and continued sales tax. Repeal all other taxes.

Make the three listed above the exact same percentage. Currently, Puerto Rico already has a sales tax which some claim is ineffective. It is only ineffective because of lack of enforcement. Puerto Rico has a corporate tax, which is too high, and it has the typical progressive graduated income tax.

I’m suggesting that the flat tax on payroll income should begin with the first dollar earned and there should be no deductions. That also means no filing tax papers by April 15 for anyone who earns a living on a payroll. The current tax reform claims to eliminate that requirement for most people, but it does not go far enough.

The only people who would file tax returns would be businesses and the self-employed, who would only be able to deduct the cost of doing business. I would not include executive compensation or bonuses in the cost of doing business.

The poor would be taxed as well: they earn income, after all. This would hopefully boost more concern among the working poor on how their money is spent, thus putting more pressure on the government to do a better job.

No gas tax, no tax on cigarettes, no sin taxes, no junk food, no VAT.  Use the savings from not having to review tax returns to boost enforcement of the sales tax. The sales tax is a must, because it taxes the earnings from illicit economies while all other taxes do not. Even drug dealers go shopping. When they do, they pay the sales tax.

The flat equal percentage taxes make it impossible for government to hide new taxes like the junk food levy.

Spending Diet

Meanwhile, Puerto Rico must address the fundamental cause of its financial problems: Public sector unions and political mismanagement, gross overspending, and paying for recurring spending with long term debt.

The answer is to cut government spending by no less than 30 percent, reform the tax system as illustrated above, and eliminate public sector unions.

All of this is in my proposal for an independent Puerto Rico. Most of this can still be done regardless of status. One special provision in my proposals is a constitutional clause that denies lawmakers their annual salaries in any year they fail to pass a balanced budget. It also limits their options for getting loans, except during emergency situations like disasters or wars.

Food is not the problem in Puerto Rico. It never has been. Interfering in personal choice is just another attempt at the failed policy of prohibition and is doomed to disaster. Prohibition just helps the black market to make more money, without paying taxes.

Maybe the government should go after these guys, instead of targeting those of us who like a burger every now and then.

Edited by Laurie Blair.