According to a new study, the soda tax experiment in Philadelphia is failing hard as beer becomes cheaper than soft drinks and revenue comes in well below expectations due to fewer people buying soda, or purchasing it outside the city.
Here are the key findings:
- Philadelphia’s beverage excise tax is 1.5 cents per ounce, which is 24 times the Pennsylvania excise tax rate on beer.
- The high tax rate on nonalcoholic beverages makes them more expensive than beer in some cases. Prior research on soda taxes suggests they are likely to drive consumers to more alcoholic beverage consumption.
- Philadelphia’s beverage tax applies to diet beverages, despite those beverages having no impact on caloric intake.
- Beverage tax collections were originally promoted as a vehicle to raise funds for prekindergarten education, but in practice Philadelphia awards just 49 percent of the soda tax revenues to local pre-K programs.
- Soda tax revenues are likely below expectations due to consumer mobility. Some soda consumers may drive out of town to buy groceries, rather than pay the higher taxes.
- Poor revenue performance of Philadelphia’s beverage tax threatens the sustainability of the programs it funds.
Of the $39.4 million collected since the tax was levied on January 1, only half has gone to education funding. Because consumers are avoiding the tax, these numbers are nowhere near the projected $92 million in annual revenue. This has caused city officials to lower future projections by 14%, putting pre-K programs in jeopardy.
In a previous study titled From Coke to Coors, evidence suggests that soda taxes push consumers to purchase alcoholic beverages, which increases calorie consumption — the very thing the tax hoped to reduce. Not to mention the other problems caused by excessive alcohol intake that takes its toll on city resources.
Job loss is another problem caused by the tax as both Coca-Cola and PepsiCo companies have laid off hundreds of workers at local Philadelphia branches and pulled certain projects from store shelves.
Several lawsuits challenge the tax, as plaintiffs argue it “violates the Sterling Act by double taxing beverages,” the study notes. That means “the soda tax is levied on distributors and beverages are taxed again under the Commonwealth’s sales tax when sold to consumers.”
And as big government policies tend to do, it’s the poorest citizens who are hit hardest, especially those without transportation to leave the city in search of better prices.
For more from the study, click here.