By Theodore N. Beitchman
Philly mayor Jim Kenney’s soda tax, passed last year, has become a lightning rod for criticism locally and around the country, for the effect it has had on consumers and small business alike.
And now the Wall Street Journal’s editorial page has weighed in:
The best laid plans of politicians often go awry, and then there’s Philadelphia’s soda tax. A new Tax Foundation report finds that the 1.5-cent-an-ounce levy that took effect in January is hurting low-income workers and producing less revenue than promised, but at least it’s helping beer sales. Allow us to explain.
Mayor James Kenney and the City Council sold the tax as a revenue boon that would finance universal pre-K education. But the Tax Foundation reports that only 49% of the revenue is going to pre-K in practice in the first five years while the rest is going to fund government worker benefits and other city programs. Actual soda tax collections in the first six months were already $6.9 million below the city’s estimate of $46.2 million.
This is no surprise to anyone who knows the iron economic law that when you tax something you get less of it. In this case that means fewer soda sales. Daniel Grace, secretary-treasurer of Teamsters Local 830, estimates that soft-drink sales within the city are down by as much as 45%. His truck drivers earn money based in part on how many cases of soda they deliver, and he says the tax has halved their income. As bodegas, supermarkets and gas stations struggle to make up the lost sales of a core item, 165 of his members are out of work. Several ShopRite stores slashed employee hours this spring, and in March Pepsi announced it was laying off about 20% of its local workforce. Both blamed the soda tax.
The oddest twist is the beer boon. Pennsylvania’s excise tax for beer is eight cents a gallon, but in Philadelphia the tax on the same unit of soda amounts to $1.92, including on diet drinks. That means low-cost beer has a slight price advantage over soda for the thirsty.
This is also no surprise given that a 2013 Cornell study, “From Coke to Coors,” examined a small-town soda tax and concluded that while long-term soft-drink consumption didn’t diminish, ale purchases increased. We’ll await a future report on whether these trends continue, but other cities might note that excise taxes don’t repeal the laws of economics.