In the News
Philly.com - March 31, 2016
Would consumers bear full brunt of soda tax?
Mayor Kenney has contended that thirsty Philadelphians won't bear the full brunt of his sugary-drinks tax if it's passed. Rather, it would be partly absorbed by distributors and retailers, he says.
The Kenney administration says the tax will bring in $432 million over four-and-a-half years.
But, at the same time, it seems the mayor's revenue projections assume the opposite: that the entire 3-cents-an-ounce tax gets passed on to consumers.
"It's not contradictory," city spokeswoman Lauren Hitt said Wednesday. "The administration has said we think it's unlikely the entire tax will be passed on to customers based on what we've seen in Berkeley. [The California city is the only place in the nation that now has a soda tax.] However, best practices for revenue projections require that we take the most conservative approach possible."
The administration says the tax will bring in $432 million over 41/2 years.
To come up with that pot of money, Kenney's finance team factored in a decline in sugary-drink consumption of 55 percent. That drop-off is based on a scenario where the full 3-cents-per-ounce tax shows up on a soda's sticker price. (The soda industry puts the dip in consumption at 79 percent.)
If less of the tax gets passed on to consumers, the revenue only goes up.
"They're putting the critique out there that this is somehow not a stable source of revenue," Hitt said of critics who call the tax regressive. "And we're saying, actually, we're going above and beyond to make sure our revenue projections are stable. And if you ask us the question 'Do you think this will all get passed on to the consumer?,' the answer is still no."
The administration has pointed to the experience in Berkeley, where less than half of the 1-cent-an-ounce tax was reportedly passed on.
The soda industry contends soda drinkers will see the full levy at the cash register. It is a prediction that grocery-store and restaurant owners have echoed.
"The administration is just spinning numbers to fit its sales pitch to taxpayers," said Larry Miller, a representative for the antitax coalition. "Without exception, grocery operators as well as restaurant and bar owners have told us they will pass on the full amount of the tax. The fact is, whatever these projections are based on, this revenue stream is unreliable and will not pay for the administration's proposed programs."
Miller has also argued that Berkeley isn't a fair model. It's a much smaller, wealthier city with a soda tax one-third of the rate of Kenney's proposal.
David Frisvold coauthored one of the often-cited studies looking at Berkeley soda prices before and after the tax.
"By and large, what we found is less than half of the tax seemed to be passed through to consumers, and in fact, in many situations, it's even less than a quarter," said Frisvold, a professor at the University of Iowa.
When it comes to Philadelphia, he's cautious.
"There's a lot of moving parts to infer what might happen in Philadelphia," he said. "No one's ever implemented a tax of this magnitude before."
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