The Impact of Soda Taxes on the Economy: Boom or Bust?
In the past six months, five major cities/counties have passed taxes on sugary soda drinks, but this movement has been building momentum for years. Hawai’i deferred such a tax in 2013, and California cities made unsuccessful attempts in 2012. Former New York Mayor Bloomberg’s ban on 16+ ounce sodas was thwarted. “Forty times, city or state governments had proposed taxes on sugary soft drinks, failing each time,” reported The New York Times.
The pattern finally broke when Berkeley gave the green light on a soda tax in 2014. Earlier this summer, Philadelphia legislators placed a tax of 1.5 cents per ounce on both regular sugar and diet soda beverages. In the fallout from the presidential election, it may have gone overlooked that voters in San Francisco, Oakland, and Albany, California, as well as residents of Boulder, Colorado, all approved sugar soda taxes that will soon begin to take effect. The taxation rate for California cities will be 1 cent per ounce, and Boulder will tax at 2 cents per ounce. Since the election, Chicago’s Cook county has also passed a beverage tax that includes artificially-sweetened diet sodas. It is expected that some of these costs will trickle down to consumers, rather than resting solely with retailers. The tax would therefore reduce sales by making an unhealthy habit more expensive.
So what changed over the past few years to see these measures successful, with voter support? Public perception has shifted to embrace the amassed evidence: that the increase in sugar consumption–noteworthy in America over the last few decades–is detrimental to one’s health. The Berkeley tax essentially certified those health findings and marked the altered mindset of the masses. According to Business Insider, “Berkeley, California’s soda tax, which passed in 2014 and went into effect in May 2015, has resulted in a 22% drop in soda consumption in low-income neighborhoods, according to one study.” However, it’s worth noting that the same information that led to approval of the tax may have already affected people’s buying habits.
But the health argument alone was not enough for Philadelphian lawmakers: Mayor Jim Kenney made the case for raising revenue with the tax, revenue that could be used toward issues closer to people’s hearts. “The promise of prekindergarten energized the city’s education advocates, who joined with public health advocates. […] Ultimately, the soft drink tax revenue won’t pay just for prekindergarten, but for a host of city programs, reflecting the priorities of the council members who voted for it.” The city expects to see an additional $91 million a year from the soda tax revenues.
It’s not surprising that lawmakers made the decision based on funds, when you consider the millions spent by the soft drink industry lobbying against such measures. The money in this game is considerable: $5 million to fight the tax in Philadelphia, provided by the soft drink industry, Teamster union, and local grocery stores, spent on lobbying and marketing. That figure pales in comparison to the California campaign, which spent $40 million to try and stop the tax; half of those funds was provided by the American Beverage Association.
The soft drink giants maintain that the soda taxes discriminate in the sense that soft drinks are grocery items, which opens the door to more taxation on common foods. They also claim the taxes could cost jobs and hurt business. “Sandy Douglas, the president of Coca-Cola North America said in a statement: ‘We believe there are better alternatives for encouraging moderation in sugar consumption than higher taxes.’”
However, recalling that recent shift in public perception, “experts said that sugary drinks’ increasingly bad reputation made it an appropriate political target.” As Gail Cole notes, taxing superfluous items is a time-honored tradition, taking precedent from taxes on alcohol, cigarettes, and marijuana. Would-be Americans once famously rioted over a tax on tea, combined with a British law that supplanted American tea merchants.
Business Insider reports that a recent study by Harvard’s T.H. Chan School of Public Health anticipates not only that Bay Area residents will drink 20% less soda, but will see a 4% decrease in diabetes by 2018 and a drop in obesity as a result. “This reduction in rates of obesity and diabetes would cut healthcare costs in the San Francisco Bay Area by $54.9 million over 10 years.” For Boulder, the study found that “the incidence of diabetes would drop by an estimated 10% in the city. Healthcare costs would decrease by $6.4 million over 10 years.”
A study in the American Journal of Public Health (funded by the Robert Wood Johnson Foundation) addresses the soft drink industry’s charge of job loss as a result of the tax: the tax could actually lead to more jobs and more spending money. And soft drink companies are already future-proofing their portfolios to meet public demand for less sugary drinks, so the soda tax will have less and less impact as they continue to expand those products lines.
Ultimately, the fallout from soda taxes could include health benefits and savings, an increase in available spending money, more job growth, and a prekindergarten program in Philadelphia. If soft drink execs are correct, we could see more grocery item taxes, designed to capture revenue for the city, and job losses. With the newly enacted soft drink taxes, we’ll soon have five cities’ worth of data to analyze, so only time will tell.