The Sour Taste of Beverage Taxes | Citizens Against Government Waste

The Sour Taste of Beverage Taxes

The WasteWatcher

State and local governments continue to consider legislation that would raise taxes on sweetened beverage products based on the notion that doing so would promote improved health and nutrition among their residents.  However, these taxes have proven to be ineffective and discriminatory, and fail to influence what people drink. 

Sweetened beverage taxes also do not deliver the fiscal impact lawmakers expect.  For example, in January 2017, the city of Philadelphia implemented a 1.5 cents-per-ounce excise tax on sweetened beverages, with some of the proceeds intended to be used for educational programs.  The city originally projected that six months into the beverage tax, $46 million would be raised in fiscal year 2017, which was then lowered to $39.7 million.  The final amount was $39.3 million, 14.6 percent less than the original projection.  A February 2020 study from Drexel University found that one year after Philadelphia raised the soda tax, it had no effect on what Philadelphians were drinking.  And a March 12, 2019 University of Minnesota Carlson School study “did not detect a significant reduction in calorie and sugar intake” in the city.

The District of Columbia is the latest jurisdiction to emulate this failed concept.  Six members of the City Council introduced the Nutrition Equity Act Amendment of 2021 on March 29, 2021, which means only one more council member is needed to pass the legislation.  The bill would implement a 1.5 cents-per-ounce tax on sugary drinks in the District of Columbia and create a Nutrition Equity Catalyst Fund with the goal of teaching elementary students how to eat healthier.  While many sweetened beverages sold in stores will be taxed, sweetened coffee drinks sold by large coffee chains would not be subject to the beverage tax.  The Alliance for an Affordable DC has argued that families who purchase basic beverages at the grocery store will be taxed, but those who can afford high-priced coffee at will not be taxed.  All sin taxes are regressive, and the D.C. sugary drink tax will not be an exception.

Seattle added a 1.75 cents-per-ounce tax on sweetened beverages which took effect on January 1, 2018.  In an attempt to impose this tax statewide, six senators introduced SB 5371 on January 28, 2021.  The tax would apply to each ounce of soda, juice or sweetened coffee drink sold with more than 20 calories in a 12-ounce serving.  Lewis Bumsted, an operator of two grocery stores in Washington, stated that the tax would force him to raise prices on customers who have struggled during the pandemic.

Rhode Island is also considering a sweetened beverage tax of 1.5 cents-per-ounce.  The goal is to provide funds for Supplemental Nutrition Assistance Program recipients to get half-off on fresh produce “to help address food insecurity.”

Sweetened beverage taxes can also cause residents to travel to other neighboring communities with lower taxes on drinks.  Philadelphians traveled to nearby jurisdictions nearby, and that is even more likely happen if the District of Columbia implements its beverage tax, since everyone lives within five miles of Maryland or Virginia.  People from Washington could travel to Idaho, which has low taxes, or to Oregon, which is among the five states in the country that does not impose any sales taxes including a tax on sweetened beverages.  Online purchases will also allow residents of states with a high beverage tax to avoid the extra cost.

Beverage taxes have proven to be harmful to small restaurant owners and their families, especially those who have struggled to make ends meet during the coronavirus pandemic.  Even before the pandemic, many small businesses were struggling to make ends meet and these regressive taxes will hurt them even more. 

Taxes should be flat, low, and broad-based, instead of targeting specific products and industries.  Cities and states should not enact extra discriminatory taxes on items that will place a heavier burden on those who can least afford them.