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Last Updated: Tuesday, 16 September, 2003, 09:26 GMT 10:26 UK
Grounds for a new tax
By Jonathan Duffy
BBC News Online

Is a latte a luxury? As voters in Seattle decide whether to slap a tax on espresso-style coffee, the Irish have plans to tax chewing gum and bank receipts, having already done the same for plastic bags. Get used to it - new taxes probably aren't going away.

When you've seen one, you've just about seen them all. The inside of a Starbucks coffee shop is a modest affair, a lumpy sofa here, a chiller cabinet there.

Many would see having a coffee there as an ordinary thing to do.

But in the city which unleashed this multinational enterprise on the rest of the world, the lawmakers at least are inclined to disagree.

To the burghers of Seattle, Starbucks' coffee, and that peddled by the myriad similar chains and independent coffee shops, is a luxury.

Street protest
Plans for a latte tax have prompted street protests in Seattle
And as such, consumers should have to pay a tax on it.

That's the idea behind Initiative 77, on which Seattleites are voting on Tuesday.

It proposes a 10 cent (6p) tax on all "espresso beverages", which, incidentally, are legally classified as "coffee brewed by forcing steam through ground coffee beans".

The money raised will go to help some 3,000 children, many from poor families, get pre-school education.

Apart from giving rise to the prospect of coffee apartheid - lattes, espressos, cappuccinos would be included, but filter coffee exempt - the idea has split a city which spawned the 90s coffee revolution.

"If people are willing to pay $3 for a triple grande mocha, they're willing to pay an extra 10 cents for a good cause," says John Burbank, head of the non-profit Economic Opportunity Institute.

Too random?

Critics, however, decry the randomness of it all. What has coffee got to do with children's education, they say?

THE LATTE TAX
Flat 10 cent charge on espresso-style coffee
Fans say it will raise $7m, critics say $2m
Seattle imposes no income tax or sales tax

Jonathan Leape, of the London School of Economics, predicts trouble ahead if the proposal is ratified.

"Anything which is specific like this is open to distortions, in tax avoidance - for example if someone invented a latte-style filter coffee drink.

"It also raises the prospect of tax evasion - the shop owner who pretends in his accounts he is selling filter coffee."

Rather than put a high tax on a single item, the prevailing trend is to levy a (generally low) tax across a broad range of goods - such as VAT in Britain.

It means cost-conscious shoppers are not forced to choose between a taxed product and non-taxed one.

Yet the idea of earmarking tax receipts for a specific need - in this case pre-school learning - has enjoyed a resurgence of interest in the last five years, says Dr Leape.

The theory is widely scorned by economists for being too rigid. And, often as not, says Carl Emmerson of the Institute for Fiscal Studies, politicians can't be trusted not to shuffle the finances around, making a mockery of the theory.

"Sale of an espresso beverage" means the furnishing of an espresso beverage for compensation, whether that beverage is consumed upon the premises or not
Initiative 77 defines selling a coffee
The BBC licence fee is a rare example of a hypothecated tax that operates effectively, says Mr Emmerson, since it is totally transparent - the Treasury cannot dip into the BBC pot when it's short of cash.

On the plus side, says Dr Leape, ear-marking reminds us of the direct link between tax and a civil society.

In the US, the idea has been mooted of a "download tax" on computers, MP3 players and ISP accounts, to offset the industry costs of computer users downloading music for free.

Ireland's recent plastic bag tax - supermarkets charge customers 15 cents per bag - has earned the Exchequer 11m euros and the respect of environmentalists.

Dublin is now drawing up plans for taxes on chewing gum, cash-till receipts and polystyrene fast-food boxes, all of which present a litter problem.

Tony Blair
Paying his dues
These Pigouvian taxes - named after the economist AC Pigou - are about changing behaviour, as well as raising money, and are more widely associated with tobacco.

"These sort of taxes are win-win-win," says Dr Leape. "They get people to do a bit less of what you don't want, they raise money to tackle the remaining problem and they free up other taxes to be spent on other things."

This points to why these creative taxes seem to enjoy a degree of popularity.

So are we likely to see these "creative taxes" in the UK? The Congestion Charge in London is a tax by another name, and one which other cities in the UK look set to impose. The current appetite for targeting anti-social behaviour, such as littering, further raises the likelihood of such levies.

How long will it be before Gordon Brown wakes up and smells the coffee?


What do you think should be taxed, and why?

Some of your suggestions so far:

I would put a prohibitive tax on chewing gum to disuade people from buying it and also to pay for chewing gum cleaners of the type that are used in Dublin.
Richard, UK

Large, transparent, plastic crates should be heavily taxed. While eggs, laser pens and hamburgers should be zero rated.
Scott, Belgium

4x4s should be subject to additional taxes to pay for the additional gas-guzzling pollution, and the urban environmental damage they produce. For most users they are a luxury fashion accesory, not an essential form of transport
Andrew Slater, UK

A specific tax on packaging - the less biodegratable the higher the tax (with take-away boxes at the top of the band).This would encourage fast food chains/customers and supermakets to put more thought in to thier packaging.
Hugh R, Britain

Caravans, golf and line dancing. Hey, but that's just me. Maybe that's what's wrong with this concept.
Mike Baldwin, UK

Glass bottles because currently, the consumer does not pay for the cost of glass disposal and the damage caused by broken glass. This would encourage refundable bottle schemes such as exist in other European countries.
Dughall, Scotland

I would wholeheartedly support a punitive and immediate tax on anyone caught wearing a garment bearing the FCUK motif. While this might be considered a tax on the poor (and half-witted), the resulting income could be used to re-educate these people into realising that wearing mass manufactured clothing bearing a semi-swear word is not "individual" or "rebellious".
Peter Thody, UK

Unhealthy foods should be taxed. Heart disease and cancer are some of the biggest killers of Western adults.
David Nutter, UK

Fridges, microwaves etc, anything that requires a great deal of effort to recycle/dispose of safely
Brian Westerman, UK

Put a tax on cigarette ends. This will then be used to pay for cleaning up the mess left by smokers.
Pat Pruchnickyj, UK

Peronalised number plates, because any poser willing to spend up to 75,000 to advertise themselves on their car must have more money than sense.
Roger Jackson, England

The volume of space that the human body occupies should be taxed, thereby combatting obesity.
John, UK

Garden and DIY machinery should be taxed according to the level of noise they produce. Our neighbour has the noisiest, smelliest hedge clippers and lawn mower I've ever come across.
John, UK

I would impose a zero-tax rate on bicycles and bicycle components to help encourage people to adopt greener modes of transport.
Alex Fiennes, Scotland

There should be a tax on umberellas carried by little women in crowded streets, unnecessary packaging, 4x4's, smokers and anyone doing anything that I don't like.
Bill Craven, Scotland

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