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Philadelphia Business Journal Column - March 14, 2016

Kenney admin breaks down sugary drink tax revenue estimates, but opponents find flaws

Mayor Jim Kenney's administration expects a 55-percent decrease in sugary-drink sales if a proposed 3 cents-per-ounce tax on sugar drinks in Philadelphia is passed. The methodology was broken down on Monday, but opponents say the city's assessment is flawed.

Kenney's administration estimated the 3 cents-per-ounce sugary drinks tax will generate an additional $432 million for Philadelphia in the next five years based on a number of factors.

The tax would result in a decline of 55 percent in sales in the first year the tax is implemented, followed by a 1-percent decrease in the years thereafter, Marisa Waxman, deputy revenue commissioner, said at the Monday briefing.

"Even without a tax, we can expect a decline in sugary beverage consumption in Philadelphia over the coming years," she said.

That 55-percent and 1-percent decline was built into the mayor's office's evaluation of the tax, which the administration expects will generate $432 million in additional tax revenue.
The 55-percent decrease would be dependent on how much distributors passed on to the customers.

"We believe market forces would play a big factor on that," said spokesman Mike Dunn. "It's possible that some or perhaps a larger portion of this 3 cents per ounce would be born onto the distributor."

Kenney only took into account the 3 cents-per-ounce tax into the $432 million figure, and not the 4.5 cents-per-ounce tax on fountain drinks that was a holdover from Mayor Michael Nutter's proposal a few years back, since the goal is to level that out so fountain drinks would only be taxed at 3 cents-per-ounce.

The 3 cents-per-ounce sugary drink tax proposal would fall "well short" of the funds estimated to be generated "because a tax increase and price increase on consumers that big has a huge effect on sales," according to Northbridge Group's Kevin Dietly, economic consultant to the American Beverage Association, who said people would travel outside of city limits to buy their sugary drinks.

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