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Commentary By Daniel Banko-Ferran

Philly’s Soda Tax Will Disproportionately Hurt the Poor

Economics Regulatory Policy

On January 1 Philadelphia implemented a sweetened beverage tax, raising the price of sweetened drinks (including diet drinks) across the city. The health benefits of the 1.5-cent-per-ounce tax remain unclear. The tax is the first of its kind in a major U.S. city; New York’s soda ban was blocked in 2014 by the state’s courts, and Berkeley, California, is currently the only other American city with a soda tax. Many taxes have been proposed and rejected. Forty sugary drink tax initiatives have been rejected across the country since 2008, including two prior ones in Philadelphia under Mayor Michael Nutter.

According to a Harvard study by Professor Steven Gortmaker, the tax could lead to a 55 percent decrease in sugar-sweetened beverage intake in the first year and a 1 percent decrease for every year afterward, leading to 36,000 fewer cases of obesity in the city. But this assumes that the consumption of sugar-sweetened beverages would not be replaced by close substitutes. This is unlikely, especially given that some beers have become cheaper than soda due to the tax.

The tax was first proposed by Mayor Kenney in February 2016, and passed the City Council 13-4 on June 20. Although advertised as a tax “to tackle [Philadelphia’s] largest and most crippling problems [such as] poverty, an inadequate education system, and struggling neighborhoods,” nearly 20 percent of the tax’s revenue is going towards funding other beneficiaries, including increasing city employee benefits ($6 million), health and human services ($4.35 million), and funding parks and community colleges. In total, the tax is expected to produce $91 million in revenue, of which only 49 percent will go towards funding pre-K education.

The tax has received widespread criticism from Republicans and Democrats, and was a point of contention during the campaign. Critics range from corner-store owners to the powerful American Beverage Association, and Bernie Sanders voiced opposition to the tax because of its disproportional effect on low-income families. Hillary Clinton said she was “very supportive” of the measure, suggesting in regards to funding universal pre-school, “if that's a way to do it, that's how we should do it."

The Pennsylvania Budget and Policy Center estimates that the average American family drinks approximately 44 gallons of soda a year, which translates into $42 a year spent per family on the tax. This tax is not a small increase: the price of a 24-oz drink costing 99 cents will increase to approximately $1.35, an almost 40 percent increase. The tax disproportionately affects low-income families, since more than 185,000 people in the city earn less than $12,000. Philadelphia has the highest poverty rate among the nation’s largest cities at 26 percent and the highest tax levy for low-income families. The question remains whether the long-term benefits will outweigh the short-term costs.

Some experts, including physicians Mitchell Katz and Rajiv Bhatia, argue that such a tax is an appropriate way to correct a market that favors unhealthy food choices over healthier options, but this argument is unconvincing. Currently consumers are not restricted in their ability to choose between healthy and unhealthy food choices.

The tax also applies to diet drinks, which addresses some of the regressive concerns since diet drinks are more popular among middle- and upper-class families. Still, there are other ways to address the obesity epidemic without imposing harsh penalties on low-income families. The soda industry should not be needlessly singled out, when there are many contributors to obesity.

With nationalized health care, the economic cost of obesity is $190 billion per year, according to a National Bureau of Economic Research study by economists John Cawley and Chad Meyerhoefer.  This constitutes 21 percent of annual medical spending in the United States. It may be that with nationalized health care, the government is motivated to cut down on soda consumption to reduce health care costs. But consumption of full-calorie sodas by average Americans has dropped 25 percent in the last two decades.

If we want people to live healthier lives, we need to focus on educating them on their dietary choices rather than limiting their choices and imposing taxes that disproportionately hurt low-income families.


Daniel Banko-Ferran is a contributor to Economics21.

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