The failing “soda tax” in Philadelphia is having a bizarre effect: Alcoholism.
As a result of the 1.5-cent-per ounce tax on carbonated beverages, it turns out that beer is now cheaper than soda – and people are drinking more of it.
The Tax Foundation released a new report on the city’s excise tax, finding that not only has revenue fallen far short of projections, but that it has forced some city residents to drive to nearby towns just to do grocery shopping.
To top it off, the study found that the tax on soda is now 24 times higher than the state tax rate on beer.
“Purchases of beer are also now less expensive than nonalcoholic beverages subject to the tax in the city,” according to the study, written by Courtney Shupert and Scott Drenkard. “Empirical evidence from a 2012 journal article suggests that soda taxes can push consumers to alcohol, meaning it is likely the case that consumers are switching to alcoholic beverages as a result of the tax. The paper, aptly titled From Coke to Coors, further shows that switching from soda to beer increases total caloric intake, even as soda taxes are generally aimed at caloric reduction.”
Unlike most cities, Philadelphia imposed the tax specifically to raise revenue, not reduce obesity. The city even taxes diet sodas. The money is supposed to go to pre-kindergarten programs.
But so far, less than half of the almost $40 million collected so far has gone to education funding.
“[T]he tax was originally promoted as a vehicle to raise funds for prekindergarten education, but in practice it awards just 49 percent of the soda tax revenues to local pre-K programs,” study authors Courtney Shupert and Scott Drenkard write. “Another 20 percent of the soda tax revenues fund government employee benefits or city programs, while the rest of the money will go towards parks, libraries, and community schools.”
Because people are avoiding the tax, collections are well below the $92 million promised too.
“Soda sales in Philadelphia have also declined since the tax went into effect at the beginning of 2017, threatening the long-run sustainability of the tax,” Shupert and Drenkard write. “According to some local distributors and retailers, sales have declined by nearly 50 percent. This is likely primarily due to higher prices, which discourage purchasing beverages in the city.”
Earlier this year, Pepsi laid off 100 workers because of the tax. The company said the tax alone is responsible for a 43 percent drop in business in Philadelphia.
“From an operational standpoint, the tax rollout continues to create problems for the city as collections have come in less than projected,” the Tax Foundation added. “In July, city officials lowered beverage tax revenue projections by 14 percent, leaving the pre-kindergarten programs that the tax promised to fund in jeopardy.”
“Furthermore, soda taxes are regressive, hurting low-income earners the most. Philadelphia’s experience serves as a cautionary tale for other areas weighing similar beverage taxes,” the group said.