As cities search for ways to plug budget holes and policy analysts search for ways to curb the problems of excess sugar consumption – primarily diabetes – Philadelphia thought they may have found a way to do both when it passed a 1.5 cent per ounce tax on sugary sodas in June 2016. The tax went into effect on January 1st of this year and is levied on distributors.
According to research done by the Tax Foundation, the outcomes in Philadelphia have not been what the city desired. The most obvious indicator of this is that tax revenues, earmarked to support education, have been about 14% less than expected. Initial projections of $46 million in tax revenue for the first half of this year actually came in at about $40 million. The Foundation attributes that to more Philadelphians doing their grocery shopping in communities adjacent to the city but also concedes that it could be due to retailers and consumers purchasing more soda before the tax went into effect and storing it.
More broadly, the tax on soda is a highly regressive one and so has impacted poorer consumers more than rich ones and may even have the effect of shifting consumer purchases towards alcoholic beverages and away from non-alcoholic ones. The tax on soda is twenty-four times as high as the tax on alcohol in the city, meaning that a beer is cheaper for many people to buy than a can of soda.
Cities looking to solve problems in a way similar to how Philadelphia attacked this one would do well to heed the example. The full report from the Tax Foundation is available here. The Tax Foundation is a Washington, D.C. based think tank that advocates for lower taxes by publishing reserach on the impact of local, state, and federal tax policies.
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