Philadelphia's Proposed Soda Tax
by Karen Eckstein Sarkissian
Photography by K/D/Morris
Mayor James Kenney and the members of City Council are working on the budget for the upcoming fiscal year, which runs from June 30, 2016 through July 1, 2017. As dictated by the Philadelphia Home Rule Charter, Mayor Kenney delivered his proposed budget to City Council on March 3rd. He spoke about the importance of pre-K education, gun violence, racial and socioeconomic achievement, and investing in parks and recreation. City Council now has until May 31st to pass its version of the budget, and the mayor has until June 30th to approve it.
Along with the budget proposal, Mayor Kenney introduced Bill No.160176, the Sugar-Sweetened Beverage Tax, or as it’s more commonly known, the Soda Tax. The tax calls for a rate of 3 cents per fluid ounce of beverage, and 27 cents per ounce of syrup, which is used to make fountain soda. Reaction to this bill has been extremely varied, and those on both sides have expressed their opinions through Internet and newspaper articles, as well as radio and television ads, hoping to gain public support. Few, however, have explained exactly what the bill seeks or how it would work.
The tax would be levied upon licensed distributors, described as any person who supplies beverages to dealers in the city of Philadelphia. Distributors include the Coca-Cola Company, Pepsi Cola Bottling Company, and Allen Brothers Wholesale Distribution. Dealers are any person who sells sugar-sweetened beverages within the city, including but not limited to restaurants, retail stores, street vendors, owners and operators of vending machines, and other distributors who engage in retail sales. Sugar-sweetened beverages comprise sodas, non-100% fruit drinks, sports drinks, flavored waters, energy drinks, pre-sweetened coffees and teas, syrup, and non-alcoholic drink mix. Excluded are baby formulas, milk products, and unsweetened drinks to which sweetener could be added. And, beginning January 1, 2017, no dealer can sell any beverage unless it is purchased from a distributor.
If City Council implements the soda tax, Mayor Kenney expects to collect $400 million over the next five years. Such monies would be used in the following ways: $256 million to expand pre-K programs; $23 million for green infrastructure improvements to city facilities; $26 million to decrease the $5.7 billion deficit facing the city’s pension system; $39 million to help open 25 community schools, which provide access to medical care and other services, such as tutoring and family planning; and $56 million for the purpose of rebuilding parks and recreation centers.
The soda tax is not new to Philadelphia. Roughly ten years ago, public health researchers introduced it as a means of reducing the consumption of sugary drinks, but the soda industry successfully fought the tax, as well as those in New York State and San Francisco, asserting that such an imposition would create a “Nanny State,” where pretentious politicians claim to know more about how people should live than they do.
Berkeley, California is the only American city to successfully pass a soda tax. The city believed that soda and other sugary drinks were the number one source of added sugar in the American diet, and were linked to an increased risk of diabetes, heart and liver disease, obesity, and tooth decay. A year after it was enacted, the Berkeley Soda Tax raised $1.5 million for community nutrition, city-wide health initiatives, and school garden programs.
The Berkeley soda tax is considered a “Sin Tax,” as it seeks to discourage people from doing something. Such taxes are more commonly levied upon alcohol, tobacco, and gambling. Philadelphia’s soda tax is not a Sin Tax. Mayor Kenney never indicated in his budget address that that he wanted anyone to stop drinking soda or sugary drinks. He has a five-year plan in in place for the monies he expects to generate, so he needs current soda and sugary drink sales to remain consistent if his plan is to work.
The tax has the endorsement of over seventy local groups and organizations, including the Pennsylvania Chapter of the American Federation of Teachers, Fraternal Order of Police Lodge 5, and the Greater Philadelphia Cultural Alliance. According to documents I received from Public Citizens for Children and Youth (“PCCY”), the group supports the tax because it works toward solving the problems that have burdened the city for decades: poverty, education, and green infrastructure.
A quarter of the city’s population lives in poverty and depends on government services, many fail to graduate high school, and nearly half exist on an annual wage of $35,000 or less. At 26%, Philadelphia has the highest deep poverty rate among the nation’s ten largest cities. PCCY notes that the schools in these poverty-stricken areas are on the lowest performance tiers, and close to half their students enter kindergarten unprepared. 67% of Philadelphians seeking employment test between the fourth and eighth grade levels for reading, writing, and math, leaving them unable to secure good-paying jobs to support either themselves or their families. The city’s failure to properly educate its children forces families to move away, weakening the workforce and driving businesses to relocate. In a recent survey, a tech start-up admitted that the Philadelphia school system was a bigger deterrent to financial growth than the wage tax.
Studies show that quality pre-K breaks the cycle of poverty, as children have tremendous learning potential during the ages of three and four. In addition, quality pre-K can reduce the need for special education services, which could save the school district approximately $72 million over the length of time an entire group of children went through school.
With regard to green infrastructure, PCCY insists that proximity to nature and open spaces may reduce violence. When the Fairmount Park Conservancy invested $5 million in Hunting Park, crime went down 89% within a half-mile radius of the park over the next three years. When police helped volunteers clean up vacant lots and plant gardens, burglaries and thefts fell from forty crimes per month to four. Plus, rebuilding projects create hundreds of construction and long-term programming jobs.
Nutritionists and health advocates have also gotten behind the bill. Kathy Fisher, Policy Manager of the Greater Philadelphia Coalition Against Hunger, stresses that nearly a half-million Philadelphians, 40% of whom are children, cannot afford nutritious food and receive monthly Supplemental Nutrition Assistance Program benefits (food stamps), which often do not last the entire thirty days, leaving families to turn to food pantries. Such food insecurity puts them at high risk for long-term health conditions, including hypertension, diabetes, and obesity.
In an April 29th Philly.com article entitled, “Harvard Study: Soda Tax Would Make Phila. Healthier,” Steven Gortmaker, Health and Sociology professor at the Harvard University T.H. Chan School, studied the impact of a soda tax and concluded that nearly 2,300 diabetes diagnoses would be prevented annually; 36,000 people a year would avoid obesity; about 730 deaths would be averted within the first decade; and close to $200 million would be saved in health spending. Professor Gortmaker based his conclusions on a previously published report on the national impact of a one-cent soda tax, and then used census and other data to simulate the combined experience of more than one million Philadelphians, who are poorer and less healthy than the national average.
With so much local and national support (both Hillary Clinton and former New York City mayor Michael Bloomberg have spoken out in favor of the tax), one might think there is no opposition to Kenney’s bill. I spoke to John Longstreet, CEO of the Pennsylvania Restaurant and Lodging Association, and while he applauds initiatives for schools, he felt that the tax targets one industry and takes from the people it intends to help. Lower-income people consume the most soda and sugary drinks; with the extravagant three-cent proposal, the tax on a two-liter bottle would amount to $2.04—higher than the price of the actual bottle. This puts financial pressure on not only the consumer, but the distributor as well. Danny Grace, Secretary-Treasurer/Business Manager of Teamsters Local 830, a union that represents the soda industry’s manufacturers and drivers, explained that when Mayor Nutter previously tried to add the tax to the budget, the local Coca-Cola and Pepsi Bottling companies threatened to shut down and leave. Together they employ over 2,000 people in the region.
For this reason, Democratic Councilwoman Maria Quinones-Sanchez is concerned about the Coca-Cola bottling plant in her district. She wants to improve civic spaces, but she believes that soda is an “anchor” product: if people leave the area to buy soda, they will also buy other products elsewhere. As an alternative, she points to a bill she supported that would add a surcharge to parking tickets to raise funds for parks maintenance. The Councilwoman also thinks that a subsidy for pre-K could come from a hike in real estate taxes.
Council President Darrell Clarke has offered a counter-proposal to Mayor Kenney’s bill, suggesting a one-cent, three-quarters of a cent, or a half-cent compromise. His plan would still raise enough money for community schools and improvements to parks and recreation centers, but funding for pre-K would not be as substantial. The mayor’s plan proposes 6,500 new seats over five years; Clarke’s proposes only 2,000 new seats. Nor does his plan include monies for the pension system.
Political wrangling aside, many low-income residents just want to know whether the tax will increase the cost of soda. This depends on whether the distributor passes the cost of the tax onto the dealer, and whether the dealer then passes that cost onto the consumer. According to Tom Lochner’s November article in Mercury News (“Berkeley: First-In-Nation Soda Tax Begins To Show Results”), larger retailers in that city were able to absorb extra costs passed down to them by the distributors, but neighborhood convenience and grocery stores could not afford to do the same. One shopkeeper said that customers were buying beverages from neighboring cities where there is no soda tax.
In Philadelphia, the numbers would look something like this: There are 68 ounces in one two-liter bottle of soda. The distributor would have to pay $2.04 tax on that one two-liter bottle. I looked for a wholesale case and found that it contained twelve bottles. Cost: $18.95. At three cents an ounce, the distributor would pay $24.48 tax on that case. I found a 128-ounce wholesale bottle of soda syrup. Cost: $27.14. At twenty-seven cents an ounce, the distributor would pay $34.56 tax on that bottle. The amount of tax the distributor must pay is about 20% more than the amount the dealer charges the consumer, so imagine how much more it is than the amount the distributor charges the dealer. And if dealers’ costs go higher, then consumer costs will surely go higher.
According to a recent Philly.com piece by Beth Anne Mumford, the Pennsylvania State Director of Americans For Prosperity predicts that low-income residents will be impacted most by the tax, as they spend a disproportionate amount of their income on soda and other sugar-sweetened beverages. And, while middle- and high-income residents would be able to drive outside the city to shop at larger discount stores, many low-income residents do not own vehicles and therefore do not have that option. Rob Dubow, the administration’s Finance Director, expects the city’s demand for soda to fall by more than half in just the first year. This would harm small grocery stores, convenience stores, and street vendors, as well as the low-income residents they serve and employ.
One cannot avoid a sobering truth: sometimes the only way a government can raise money is through taxes. They really do serve a purpose in our society. Taxes pay for garbage collection, police protection, ambulance services, and our military. Taxes take care of our veterans, make sure our food and drugs are safe, and regulate pollution. We need those things. And governments can tax individuals or entities to generate revenue for certain expenditures.
The reasons for the soda tax are admittedly very good. Pre-K programs are great, community schools are terrific, improving our infrastructure is wonderful, and doing something about the budget is fantastic. Even those who oppose the tax support these proposals. Those who want the soda tax feel so strongly about what the monies will do, they feel the “ends will justify the means.” In many cases, the ends do justify the means. And there’s nothing wrong with that.
But like some of the opponents of the tax, I feel that it does target one particular industry and that perhaps it should be more spread out, more fairly directed. Call me crazy, but even if someone showed me a mile-long list of the tax breaks the government has given the soda companies, evidence of billion dollar executives bonuses, and a catalogue of injustices, I would still advocate for a fair tax. We must advocate for those we like as well as those we don’t like, for, as Spock of Star Trek once famously said, “the needs of the few outweigh the needs of the many.”