Philadelphia Soda Tax: The Goods, the Bads and the Uglies

Mar. 21, 2016

The hot topic in Philadelphia politics is the controversy around a proposed 3 cents per ounce taxation on sugary beverages. Mayor Kenney proposes to raise $400 1000000 over the next five years from what will exist the highest tax of its kind in the nation.

He wants to apply the proceeds of the tax equally follows: $256 million for universal pre-K, $39 million for customs schools, $23 million for Council President Clarke'south plan to retrofit city and Schoolhouse District buildings for energy efficiency, $56 one thousand thousand to repay part of a $300 million proposed bond for rebuilding parks and recreation centers, and $26 million to the city'due south pension system, whose unfunded liabilities are around $v.half dozen billion.

This is a complicated proposal both in terms of where the money will come up from and where information technology will become: who pays and who benefits, what nosotros can know and what we might learn. Let's break it down.

The Proficient

The revenue enhancement has the potential to laissez passer (although not at its present rate) precisely because, unlike prior efforts, it seeks to build a constituency for the tax unrelated to the public health benefits of a reduction in soda and sugar consumption. Public health is a worthy crusade but when it comes to raising revenue it is all-time to focus on what people volition get, rather than on what they will not have. A reduction in diabetes brings few ribbon cutting opportunities; rebuilt recreation centers and new childcare centers are photo-op rich.

The Kenney taxation speaks directly to the interests that he has touted from the campaign to the budget presentation: public infrastructure and services. Mayor Kenney is promoting a neighborhood policy agenda that reverberates with the majority of Philadelphians: universal pre-K so all Philadelphians are amend prepared for school, and investments in neighborhood parks, libraries, and recreation centers, to meliorate the quality of customs life.

The Kenney agenda is refreshing from two perspectives.

Kickoff, there is solid research that demonstrates the positive touch of quality pre-K, particularly for low-income children. The emphasis is on quality, still, and we will see if implementation is upward to the task on that business relationship. As I have said endless times in this column, implementation is policy.

Secondly, investments into public goods such as recreation centers and libraries have numerous multiplier furnishings, from structure jobs to housing values to public safety. Moreover, simply as with pre-K investments, these public investments are oriented toward immature people: where they play, how they occupy their time, and how we value them.

Deciding to utilize a soda tax to fund these efforts is a case of political misdirection. Similar a good magician, yous want to direct the audience away from one part of the stage to some other, from the unpopular aspects of the taxation and toward its popular outcomes. Council members will accept to not simply vote it up or down, but place or negotiate other revenue sources for pre-K funding. The soda tax may be bad economics, merely it could turn out to be smart politics. Quango members will be voting down pre-K, not voting down the increased cost of sugary beverages.

The Bad

Previous attempts at a soda tax by Mayor Nutter were defeated in City Council with then-Councilman Kenney opposing both efforts to pass the tax. The forces lined upwardly against the bill are familiar: bottling companies, grocers and other retailers, and those labor unions (especially the Teamsters who represent the drivers) directly affected, who fear the tax will erode job security.

The Kenney squad is bandying well-nigh a cracking deal of simulated populism, as they talk about Big Soda continuing in the way of childcare. Making soda bottlers into anti-childcare ogres is lightheaded and it could have political reverberations, peculiarly as the politics of the tax is highlighted in public hearings. Some of the targets for the tax include some of the nearly civically-engaged Philadelphians, including bottler executive Harold Honickman and inner urban center grocers similar Jeff Brown from ShopRite.

Moreover, the Teamsters are telling anyone who will listen that the choice of a soda tax is really a matter of political revenge considering they supported the wrong guy in the election (Tony Williams) and, like the carpenters matrimony, they were on the wrong side of the Convention Center dispute with John Dougherty, Kenney supporter and electrical workers matrimony head. Dougherty, it was reported, was at the sit-downwards with Kenney and Honickman to establish communication.

Do the Teamsters have a signal? Difficult to know. But information technology's clear that intentional or not, a bulletin got delivered. And they are feeling somewhat isolated among city labor unions right now. The building trades will back up anything, like recreation centers, that increases existent estate development; SEIU will back up the expansion of service worker employment, such every bit childcare centers, and the public unions have never met a revenue enhancement they would not support.

Deciding to use a soda taxation to fund these efforts is a case of misdirection. Information technology may be bad economics, but information technology could turn out to exist smart politics. Council members will be voting down pre-K, not voting downwards the increased cost of sugary beverages.

The proposed taxation at the point of distribution would have a straight impact on the bottlers, but would be passed on to grocers and ultimately consumers. It's foolish to remember the tax volition be fully captivated past the distributors and non passed on in some measure. The question is, what volition the pass-through rate exist, and to what extent will it effect jobs, business receipts, and household budgets?

Moreover, how much will such a revenue enhancement actually heighten and, if it is successful as a sin tax, will a declining level of revenue office as a stable source of funding for childcare or whatsoever other projected use? We had these debates during the $2 per pack cigarette tax hearings. It is a real debate to accept and we will undoubtedly have it in the class of dueling economic projections.

If yous are an opponent of the tax, yous assault it as regressive considering, every bit with all taxes on consumption, the lower your income the greater the bear on of the tax. Opponents of the tax will also signal to the double whammy of its regressivity: It is hardest on lower income households considering they drink more than soda.

Opponents will also point to the issue of suburban-urban revenue leakage. A mobile urban resident volition shop across the city line to buy soda and—while they are at information technology—other groceries. In a low margin business, food retailers have reasons for concern. Moreover, if the tax is high enough, an illegal marketplace will emerge every bit it has with cigarettes, depressing the revenue projections further.

Higher costs on a single item in a relatively contained geography is, by nature, a faulty tax strategy. It will generate revenue simply the revenue will likely refuse over fourth dimension and it may create other retail consequences. In the long term people effigy out piece of work effectually strategies in what they buy and where they shop. There is a reason that the states contiguous to Pennsylvania are lined with discount liquor and wine stores: If you don't have to shop at the State Shop, you drive across i of the Berlin Walls (we phone call them bridges) and practice your shopping there.

The Unknown

While Kenney is selling the acquirement uses more than the wellness impacts of his soda revenue enhancement, the public health bug are still part of the chat for many residents. And depending on what happens, it is possible we can learn a lot from all of this.

Kenney's political coalition is all near the linkages betwixt new urban progressives (social diversity, lifestyle tolerance, and good for you living) with traditional row dwelling house Philadelphia (worried nearly public services, job security, and meeting their household budget).

If you are for the soda tax, y'all desire to keep this coalition together past emphasizing public services; if y'all are against the soda tax yous attempt to derail the coalition past speaking to increased costs and the loss of jobs. In both instances, the wellness issues remain as a rather muted subtext to the whole event. Yet it is worth lifting the upshot up a bit to empathize its consequences.

Extra taxes on sodas and other sugary beverages over and above a more generic sales revenue enhancement are being proposed in other cities, mostly based on public wellness concerns. In that location are already more than 30 states that accept a tax on sodas and at that place is one metropolis (Berkeley, California) that has such a tax. Do such taxes have the desired affect on public health outcomes?

Think, if you see the taxation through the lens of public health, regressivity is not a significant problem; in fact, for some, it is the betoken. Yous desire the added costs to diminish use, peculiarly among the poor. The public wellness issue is simple to make, just sometimes more complex to prove: We have an obesity crunch; obesity poses a meaning public cost; ane way to fight the problem is to add costs to obesity promoting foods in social club to discourage apply; and then utilize some of those proceeds to put into public health programs.

The Kenney squad is bandying about a smashing deal of imitation populism, as they talk most Big Soda standing in the mode of childcare. Making soda bottlers into anti-childcare ogres is silly. Some of the targets for the tax include some of the most civically engaged Philadelphians, including bottler executive Harold Honickman and inner city grocers like Jeff Chocolate-brown from ShopRite.

The public health argument has 3 issues to confront: why sugar beverages and not other sugary foods; how much of the taxation is plenty to discourage soda consumption; and will consumers simply gravitate to other fattening options if the revenue enhancement inhibits soda consumption? There is a body of research that looks at 2 of these issues, although it is not all that conclusive.

Sugary beverages have become the public wellness culprit considering their consumption rates are so high, their calorie intake so pregnant, and they do not create a sense of being filled upwards, the manner other foods practice. Public health workers I know tell me that information technology is nothing for inner metropolis residents to consume more than a gallon of soda a twenty-four hours. Therefore public health officials take viewed sugary beverages as a disquisitional focal point in the obesity fight.

Would it make sense to tax high calorie manufacturing of all kinds in an endeavour to endeavor to get the nutrient industry to change strategies, rather than picking on i type of drink? Yes. Simply that fight gets to the heart of a food problem difficult wired into a whole organization of industrial agriculture and industrial food manufacturing. Soda is obviously only one small component of the problem. This is an agribusiness and corn subsidy issue that no single metropolis or state can accept on. It would be hard to find a commodity—apart from oil—that has transformed the earth more than saccharide.

In full general, studies say that yous can reduce soda consumption with added costs, although many such taxes are non high enough to accept that event. Just some studies testify that even a penny per ounce will accept the desired reduction. What is more complicated is the research on substitution effects; exercise buyers move their dollars to lower taxed simply just as high caloric foods? Some studies evidence that does happen only the enquiry on this is really pretty scarce.

If the tax goes through, the city will become an important laboratory for studying the effects of consumption patterns and their wellness consequences. I would promise that a individual foundation would meet the opportunity to do only that and in partnership with a pubic wellness program like the one at Drexel, brainstorm the work.

The Unnecessary

If nosotros get dorsum to the list of items Kenney wants to fund with this tax it is easy to see that this is not nearly a 3 cent per ounce tax. Some of the items can be funded in other ways, including the recreation and park bail. Moreover, some of the capital, like the small-scale contribution to the pensions, is and so disconnected from the size of the problem, it cannot exist taken serious. And the small amount for community schools does little to reply the larger questions of Philadelphia's education crisis.

Higher costs on a single item in a relatively contained geography is, past nature, a faulty tax strategy. People effigy out piece of work effectually strategies in what they buy and where they shop. In that location is a reason that usa contiguous to Pennsylvania are lined with discount liquor and wine stores: If you don't accept to shop at the State Store, you drive beyond one of the Berlin Walls (nosotros call them bridges) and do your shopping there.

The soda tax is really a stream of revenue for pre-K. And if it is viewed that style, and then a 1 or i.five-cent tax will do the fob. Kenney and Council can accept a much smaller tax, which will still not sit down well with grocers, bottlers, and the Teamsters but will be enough to fund a meaning amount of childcare programs. Council President Clarke will need something for his program, but he too will compromise.

Mayor Kenney is a product of Philadelphia politics. He knows that the 3 cents taxation was a negotiating number. He has none of the purple presumptions of Governor Wolf, whose numbers ever sound like gifts from Sinai.

A much bigger issue than this tax involves how Kenney plans to govern. He knows that Harrisburg is bound in a stalemate that could last well by the Nov 2022 elections. Money for education and early babyhood education will not be forthcoming at the level Governor Wolf wants at least until 2017—if so.

So far, Kenney's answer to revenue for new programs has been threefold: debt, philanthropy, and the sin tax on sugary beverages. He volition need a much bigger playbook that involves reengineering government and developing more constructive ways of managing public avails. Moreover, he will not be able to avoid the elephant in the room forever: pension fund liabilities.

While the soda taxation debate heats up, let's keep in mind that Mayor Kenney has eight years to work out these problems. Let's wish him the best while reminding him that the clock is ticking.

Photo header: Pixabay

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Source: https://thephiladelphiacitizen.org/soda-tax-philadelphia/

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