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Philadelphia Business Journal - June 2, 2016

Opinion: Why proposed soda tax 'doesn't fit the bill'

Mayor Jim Kenney’s plan to impose a 3 cents-per-ounce tax on more than 1,000 beverages will hurt the many communities our members serve and the tens of thousands of Philadelphians whose families depend on the work at grocery stores across the city. The food industry employs over 12,000 Philadelphians.

The mayor’s proposal would drastically raise the shelf price of common grocery items – from soft drinks, fruit juices and teas to sports drinks and even flavored waters. In many cases, the tax would be more than the current price of the product itself. Consumers, for example, would have to pay a whopping $1.92 in tax on a 64-ounce family size iced tea, a 200 percent price increase.

Our members strongly support Mayor Kenney’s plan to expand pre-K programs and to invest in municipal infrastructure and increased services at Philadelphia schools.

Yet these worthy goals must be funded through a smart tax policy that encourages economic growth and attracts business to Philadelphia.

Mayor Kenney’s proposal doesn’t fit the bill. It will hurt Philadelphia’s poorest communities while also placing new obstacles in the way of economic growth and frustrating the city’s successful efforts to expand food access. About 30 supermarkets and many full service convenience stores have opened in the past decade.

This tax would further strain the budgets of working families who struggle each week to put food on the table. The simple fact is that working families in some of Philadelphia’s poorest neighborhoods will end up bearing the brunt of this regressive proposal because middle class consumers will easily be able to evade this tax by shifting their weekly shopping trips to supermarkets in the suburbs.

While Mayor Kenney has repeatedly said that businesses will be able to absorb this tax, we have consistently heard from our members that they would be unable to absorb a tax at any level and they would be forced to pass its entire cost onto consumers. Food Merchants typically operate on a 1 to 2 percent profit margin after taxes. There is simply no place available in their budgets to absorb this onerous tax.

This proposal would also deal a major blow to many of the city’s successful initiatives to increase grocery access in the underserved neighborhoods known as food deserts. Teaming up with the Commonwealth, city officials have successfully expanded grocery access by working with local corner stores to improve their offerings and by utilizing innovative financing measures to support supermarket expansions. There are even provisions in the city zoning code designed to incentivize grocery store development.

These initiatives have made Philadelphia a national model for improved food access and led to a wave of store openings in recent years that has greatly expanded access to healthy food options in some of the city’s poorest communities.

Philadelphia’s successes were even touted by First Lady Michele Obama in a 2010 visit to a newly opened grocery store serving the West Oak Lane section of the city – a neighborhood that had been without a supermarket for more than a decade.

Beverages are the single largest-selling item in supermarkets, accounting for about 20 percent of the average supermarket’s sales. Given the razor-thin margins under which most groceries operate, this tax would make it very difficult to continue to build on these successes.

And while we are pleased that City Council President Darrell Clarke has voiced his opposition to the mayor’s original 3 cents per ounce proposal, a tax at any amount would do serious damage to the 195 food stores we represent in the city – as would Councilwoman Blondell Reynolds Brown’s alternative proposal, to levy a 15-cent tax on beverage containers.

In addition to providing groceries to Philadelphia residents, each supermarket, convenience store and corner store in Philadelphia is an economic engine that powers families into the middle class.

Each supermarket provides good-paying jobs to 200 to 300 Philadelphians. And operating a small corner store or grocery provides a ladder of opportunity for many families – especially immigrants – in Philadelphia’s poorest communities.

When weighing different proposals to fund the mayor’s initiatives, City Council should eschew proposals that would weaken economic growth in Philadelphia and instead look at implementing comprehensive and broad-based reforms to broaden the tax base. Proposed wage tax and business income and receipts tax reductions should be delayed as well.

At the same time, the city must aggressively target tax evaders, who owe hundreds of millions of dollars in taxes that could easily pay for these programs. Taxpayers who play by the rules, like PFMA members and the many families who shop with them, should not be subsidizing delinquent taxpayers.

It has become clear to us in recent weeks that the people of Philadelphia have turned against this wrongheaded funding proposal. We can see it in the more than 25,000 ordinary residents and more than 1,300 small businesses who have joined the Philadelphians Against the Grocery Tax Coalition.

And we applaud City Council for taking these concerns seriously and asking tough questions throughout the budget process. As the budget deadline draws near, we now call on Council to come up with real alternatives that preserve the city’s successful food access programs and protect Philadelphia families.

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