Experts say if Mayor Jim Kenney gets the city to pass his soda tax proposal that would help expand a preschool program, the measure will likely disproportionately affect lower income Philadelphians. So are its benefits worth the cost?
“It’s an imperfect tax,” said Carl Davis, the research director at the Institute on Taxation and Economic Policy. “The first thing you realize is that it is regressive. It’s going to hit lower and more moderate income families more heavily than higher-income families.”
The Inquirer published details from a conversation with Kenney on Monday about some specifics for the proposal, which would give funding to Universal Pre-K and other city services. The plan would levy a three cent tax per ounce of soda on distributors and would count against sports drinks, juices that aren’t 100 percent pure and sugary teas. It would not count against diet sodas.
In the article, Kenney defended a suggestion that the soda tax would be regressive, saying “the money stays in the neighborhood.”
Berkeley, Calif., is the only American city to tax soda so far. Like Kenney’s proposal, the Berkeley tax was levied on distributors. Unlike the proposal, the tax is one cent per ounce, and Berkeley introduced it as a public health initiative, rather than as a means to pay for a city service. The goal of the tax was to force Berkeley residents to pay more for soda and coax them into reducing or eliminating their consumption of it.
It’s different in Philadelphia. If people stopped drinking soda, this funding stream for pre-k would dry up.
“The Mayor’s been clear (Monday) that he’s proposing this first and foremost to raise revenue for programs Philadelphians want,” said Lauren Hitt, Kenney’s communications director. …“Could there likely be ancillary health benefits? Absolutely.”
Two major studies tracked the Berkeley tax. Both revealed consumers were shouldering at least some of the burden. A Cornell and University of Iowa study found about one-fourth of the tax had been passed to consumers, and a California-Berkeley study found the amount to be 50-70 percent, meaning a 12 oz soda that used to cost $1 would now cost between $1.06 and $1.08.
“The distributors are going to want to pass the cost forward if they’re able to,” said Donald Marron, and an author of the study, “Should We Tax Unhealthy Foods and Drinks.”“The question is whether some competitive force is preventing that.”
Competition would mean stores in the suburbs, or Philadelphians replacing sugary drinks with non-sugary alternatives. The incidences of buying outside city limits here would likely be less than it has been in Berkeley, Marron said, given the larger size of Philly.
If 70 percent of the proposed Philadelphia tax was passed onto the consumer, a 12 oz soda that now costs $1 would cost about $1.24.
“The burden of the tax, whatever gets passed through to the retail level,” said William Shughart, a Utah State University professor and sin tax expert, “is going to fall more heavily on low income Philadelphians.”
That’s because lower income residents spend more of their incomes on food and drink and because studies and surveys have shown they consume more sugary drinks than higher income people (the same is true for cigarettes, which Philadelphia taxed to pay for schools in 2014).
One recent study of six states, including New Jersey and Delaware, showed 32 percent of people who made $25,000 or less per year drank one serving of a sugary beverage every day, compared to 20 percent of people who make between $50,000-$75,000 and 16 percent who make $75,000 or more. Those without college degrees were also more likely to drink soda than those with degrees.
The battle over the tax plan has already started. Monday afternoon, Teamsters Local 830 announced it would try to defeat this soda tax — as it did with a former Mayor Michael Nutter proposal. The union noted it had support from “small-business owners, consumers, consumer-advocates, the faith-based community and elected officials.”
