MauledAgain

For almost a decade I have been criticizing the so-called soda tax. It fails to get my support because it is both too narrow and too broad. It applies to items that ought not be subjected to this sort of “health improvement” tax, and yet fails to apply to most of the food and beverage items that contribute to health problems. I have written about the soda tax for almost ten years, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, and Putting Funding Burdens on Those Who Pay the Soda Tax.


Now comes news that despite falling short of its revenue goals, Philadelphia officials consider the city’s soda tax to be a success. According to Stu Bykofsky, the city’s budget director declared that the city’s reaction to “coming within 15 percent of that original [revenue] estimate” was something o which “we’re actually pretty proud.” Bykofsky asks, “If you announced a goal and failed to achieve it, would you claim success?” The city’s mayor’s answer, though provided before Bykofsky asked his question, “The beverage industry would like folks to think that somehow $79 million in new revenue is a failure.” The revenue projection was $92 million. The city’s finance director gave an answer by pointing out that “thousands of children are getting access to pre-K and to community schools that they would not have gotten without this tax.” Bykofsky noted that though the goal was to provide space for 6,500 pre-K children, only 5,500 seats will be added because of the revenue shortfall. He asks if the 1,000 children not getting into the program would consider the soda tax to be a success.

My reaction to this debate is that too much focus is being placed on the word “success.” Technically, success means the accomplishment of a goal. Using that definition, the Philadelphia soda tax is not a success. It failed to raise the revenue set as a goal by its proponents. On the other hand, the soda tax revenue has permitted the city to rack up several accomplishments. The question, though, isn’t whether those accomplishments amount to success – they don’t – but whether the method of funding those accomplishments made and makes sense. It doesn’t, for all the reasons I have described in that long litany of previous posts and for the additional reasons other commentators have provided. There are better and more efficient ways to raise revenue.

One of the goals of the soda tax, held out as a justification, is not discussed by Bykofsky in his recent commentary, though that’s because no city official mentioned it. The soda tax was, and still is, touted as a method of improving public health. What remains to be seen are measurements indicating that the health of Philadelphia residents has improved. Has the average blood pressure dropped? Has the average blood glucose level dropped? Has the percentage of Philadelphians who are obese dropped? Statistics exist, as this article demonstrates, but I did not find anything indicating one way or another whether the tax on some beverages, including those not contributing to poor health, has had any noticeable effect on the health of Philadelphians.

To answer the question posed by the title of this post, a tax is successful when the goals established for the tax are met within the period of time set for accomplishment of those goals. At the moment, there is insufficient information to reach a final conclusion on the Philadelphia soda tax, but to date, it has not been a success. Getting partway to the goals, though in and of itself an accomplishment, is not success. The tax is an unwise tax, and it is rare for an unwise tax to be a success.

One of my several criticisms of the soda tax is that it singles out certain liquids that contain sugar, and ignores other sugary substances. I have been writing about the flaws of the soda tax for more than a decade, beginning with What Sort of Tax?, and continuing with The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, Imagine a Soda Tax Turned into a Health Tax, Another Weak Defense of the Soda Tax, Unintended Consequences in the Soda Tax World, Was the Philadelphia Soda Tax the Product of Revenge?, Did a Revenge Mistake Alter Tax History?, What’s More Effective? Taxing and Restricting Soda or Educating People About Healthy Lifestyles?, and If Sugar Is Bad And Is Going To Be Taxed, Tax Everything That Contains Sugar.

Another, related, concern that I have about the soda tax is that it is premised on the claim that it is designed to improve people’s health, yet it is not applied to any food or beverage that is unhealthy other than sugar. So is sugar the prime cause of bad health? According to a recent study, reported in this article, the answer is no.

According to the study, the risk factor responsible for more deaths than any other risk factor is poor diet, and not smoking or high blood pressure. Yet poor diet isn’t so much the intake of sugar, red meat, and other unhealthy foods, but the combination of too much salt intake and insufficient amounts of whole grain, fruits, nuts, and seeds in diets. Examining 15 dietary risk factors, the study determined that in the five most populous countries, high salt intake was the most culpable in two of the countries, and insufficient intake of whole grains was insufficient in the other three countries. Where did high intake of sweetened beverages come in? Eighth in Brazil, eleventh in the United States, and thirteenth in China, India, and Indonesia. The only two factors in those three countries that contributed less to poor health, and premature death and disability, were high intakes of red meat and processed meat. In the United States, the only four factors contributing less to poor health, and premature death and disability, were insufficient intakes of calcium, milk, and polyunsaturated fatty acids, and too high of an intake of red meat.

So, as bad as sugar is for one’s health, there are other substances that play a bigger role in contributing to poor health. If the goal of the soda tax advocates truly is promoting health, and not just revenue raising, then the logical approach would be to tax the substances that contribute to poor health. What would make much more sense is a tax that applied not only to all items containing sugar, and not just liquids containing sugar, but also to red meat, processed meat, and items containing salt, trans fat, or both. And one of the places that at least most of the revenue should be directed would be credits for purchasing, or grants to reduce the prices of, whole grains, fruit, nuts, seeds, vegetables, legumes, milk, and items containing omega-3, fiber, polyunsaturated fatty acids, and calcium. This approach would permit a much lower tax rate, to the point where its application to sugary beverages would not raise such an outcry from some of those who oppose the soda tax.

Whether such a tax makes sense is a different question, and one that ought to be addressed before the issue of a tax’s scope is considered. Should a government use its taxing power to affect what people eat? Some would say, no, there’s no need for a nanny state. Others would point out that when people eat unhealthily, they put at risk not only themselves, but those who depend on them for support that ends when the unhealthy person dies or becomes unable to work, on the emergency services facilities and personnel who must respond to their crises, on the governments that must pay for the costs imposed on society by increases in unhealthy living habits, and on the health care system. If government takes no role in dealing with what people eat and drink, even aside from regulation of food growers, processors, and manufacturers and restrictions on driving under the influence, then perhaps it ought take no role in any other aspect of the consequences of eating and drinking. Of course, that outcome would eventually destroy society. When historians and others compare the decline of the Roman Empire with what is perceived as the decline of the United States, does societal health, aside from the lead poisoning theory, get much attention? It’s not as glamorous as the other factors, but perhaps it can be instructive.

And before discarding the notion of a tax on salt, consider this lead from the United Kingdom Salt Association: “Salt was frequently a source of taxation in ancient times and historically has probably been the most taxed commodity.” Salt taxes have also sparked protests, violence, and war. But so, too, has every other sort of tax. If compelled to choose between a soda tax and a salt tax, which would you choose?

One of the flaws in trying to use the tax law to influence behavior is that legislators too often target symptoms rather than problems. That’s not the case with all taxes. For example, a tax designed to defray the cost of trash removal that is based on the cost of removing each pound of refuse focuses on the problem, namely, the burden to a government of removing the trash. The fact that the tax also serves as an incentive to reduce trash by recycling and cutting back on purchases of throw-away items is a welcome side effect. On the other hand, proposals to tax soda and “sugary beverages” not only attack a symptom rather than a problem, but also discriminate in favor of other items that produce the same symptoms as those generated by the drinking of soda and sugary beverages.

My opposition to a tax focused solely on soda has been explained in a series of posts, starting with What Sort of Tax?, and continuing in The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, and Philadelphia Soda Tax Proposal Shelved, But Will It Return?. On March 24, 2010, my editorial, Why Phila. Soda Tax Already Has Gone Flat, was published in the Philadelphia Inquirer.

Last week, in his Opinionator column, Mark Bittman, writing about efforts to make wholesome foods more available to residents of inner city neighborhoods, lambasted opposition to soda taxes. He rued the failure of proposals in New York, San Francisco, and Philadelphia, which he attributed to “heavy campaigning by the beverage industry.” He claimed that any mention of a soda tax brings “hysteria from people (only some of whom are industrial-food shills) who claim that a soda tax is tantamount to a government takeover not only of food manufacturing but of our lives.” He noted that “Even more incredible, there are people who believe a soda tax – admittedly regressive – is somehow an attack on the poor.” He argued that a soda tax would reduce soda consumption, and also would reduce obesity. In his words, enactment of a soda tax would encourage politicians “to tax other disease-causing ‘foods.’”

Soda consumption, or more accurately, excess soda consumption is a symptom of a problem that reaches beyond soda. Too many Americans have poor eating habits. When combined with another problem, insufficient exercise, consequences such as obesity, heart attacks, strokes, and a variety of other health issues that, no pun intended, tax the health care system and require increases in government and private sector spending on curative, rather than preventive, health care, are pretty much unavoidable. Taxing soda does not solve the problem, nor does it do much to alleviate the symptom. It is unlikely that a soda tax would reduce soda consumption by a sufficiently significant amount to make any sort of meaningful dent in a culture of poor eating that extends way beyond inner city neighborhoods. Even if a soda tax causes people to purchase less soda, perhaps to the point of purchasing so little soda that the tax raises little or no revenue, people will spend their “beverage dollars” on things like diet soda, fruit juices, coffee, tea, and other liquids. Recent studies show that diet soda, especially when consumed in large quantities, poses health risks. Fruit juices contain fructose, even if unadulterated by the addition of corn syrup or cane sugar. Coffee and tea contain caffeine, which is harmful to some individuals and also poses health risks. Oddly, the sugar tax proposals that have been floated do not reach the cup of coffee or tea to which sugar has been added, in some instances to the point of making soda seem bitter.

However much of a risk soda poses to a person’s health, it is far from the most unhealthy substance people ingest. Consider, for example, donuts. Donuts not only contain sugar, they also contain fats that pose no less a risk to a person’s health. Why are there no proposals for donut taxes? Consider, as another example, cakes, pies, and other pastries. These are yet more items that combine sugar with fats, providing a double dose of health risk. Perhaps a pie tax or pastry tax has been proposed somewhere, but I’ve seen no push for a cake tax or pie tax along the lines of the effort to enact a soda tax. Why?

The comments to Bittman’s column are informative and interesting. There seems to be a disagreement on whether the tax on “sugar-sweetened beverages” would include a tax on beverages containing high fructose corn syrup. Even if a proposed tax reaches drinks containing either substance, why give tax-free treatment to other food items that contain high fructose corn syrup? One comment noted that “almost any ‘food’ can cause disease or other problems if consumed to excess.” This is quite true. Even excessive consumption of water can kill a person. This comment also questioned why a government should be “meddling by way of legislation in people’s dietary affairs.” As one who has argued against using tax law to accomplish social goals, I must agree that there are serious disadvantages to trying tax law solutions to a problem, made worse by targeting symptoms of that problem. The problem isn’t the food item. There are people who drink soda and eat donuts and pies, and yet are in fine health. There are people who have serious health problems caused by bad eating habits and lack of exercise who don’t drink soda. As another comment noted, “More kids are fat today because they don't get any exercise. If you want to ‘do’ something about it, you should be supporting sports programs or a mandatory one hour a day of PE at the schools.” Yet some politicians are making careers out of chopping school budgets and axing sports programs.

In a rebuttal to Bittman’s claim that soda taxes are an attack on the poor, another comment argued that the soda tax “is an attack on the poor” and that “We have too many regressive policies and we keep adding to them as we refuse to tax income, capital gains, etc.” The person making this comment then asked, “Why do we use ‘sticks’ on poorer/middle class people to get them to act correctly, but have to provide ‘carrots’ to the well-to-do?” Good question.

Yet another comment noted that, “If you're part of the Tea Party and you don't believe government has any role trying to improve the health of the American people, that position is certainly easy to understand but it is wrong. The U.S. (New York, actually) pioneered public health over 100 years ago, and trying to prevent obesity and diabetes should be no different than preventing cholera and dysentary [sic] were at the dawn of the public health movement. I'm sure in the 1880s there were those who maintained the government had no role trying to interfere with the free market in contaminated drinking water. Fortunately those people did not prevail.”

The question isn’t whether governments should be concerned with citizen health. Clearly they need to be. For example, when it is time to raise an army in defense, governments need healthy individuals. The existence of too many unhealthy individuals will break the backs of health-care systems, whether funded by government, the private sector, or some combination. The question is how does a government ensure that its citizens are healthy.

A tax designed to ensure a healthy citizenry needs to be focused on the burden imposed on society by a person’s failure to maintain a healthy lifestyle. How that can be measured is problematic. Perhaps it is easier to tax unhealthy foods than to figure out the computation base of a user fee designed to relieve society of the cost of a person’s bad habits, much as it is easier to tax cigarettes than it is to impose a user fee on individuals who develop illnesses on account of smoking. If the approach that is adopted is to tax unhealthy foods, then the tax should be on all unhealthy foods, not just soda. Yet, the problem isn’t the food, other than foods containing poisonous substances; the problem is excess consumption. Yet a tax on large restaurant servings would be flawed because some people make two or three meals of their purchase by using the badly-named “doggie bag.” Similarly, a tax on large hamburgers could easily be circumvented by purchasing two small hamburgers. Ultimately, the practical and administrable solution is to limit taxation to those substances, such as nicotine, that pose a high risk of harming health, and on items that contain such substances.

Another comment suggested the opposite of taxation, namely, incentives to “those who achieve desired BMI numbers.” This is a thought-provoking idea. Would it work? Perhaps. Is it administrable? Maybe. Ought it be government regulated? Probably not. Some health insurance companies already provide similar incentives, namely, premium discounts to customers who work out at a gym more than a certain number of times a month. Though there is a good argument that private sector health insurance companies have their own incentives for doing this, as it is cheaper to reduce premiums than it is to pay out larger medical expense reimbursements in the future, the current condition of American health and the proliferation of obesity cause me to wonder why the private sector hasn’t made any significant progress in this regard.

Yet another comment made an excellent point. The federal government “is actually subsidizing corn, and hence [high fructose corn syrup], and beef, and other food animals that are fed corn.” Thus, as the comment points out, “government interference [in what we eat] is already here, unfortunately in such as [sic] way as to decrease the price of unhealthy foods and maximize consumers’ ability to buy them.” Are the advocates of government subsidies for specific agricultural businesses among those who are lobbying for a soda tax? I doubt it. Are the advocates of government subsidies for specific agricultural businesses among those who decry government interference in private life? I would not be surprised if the answer is yes.

It is not surprising that government taxation and spending polices, as a whole, including user fees, tax credits, and rebates, work at cross purposes. Designing tax policies that are coherent requires much more care and attention than slapping a tax on one symptom of a much larger and more pervasive problem. The prediction that a tax on soda will lead to taxes on other items is no guarantee that a tax on soda will be followed by a tax on donuts, pies, or hamburgers. In this instance, if there is to be a tax, a package deal makes more sense.

Readers of this blog know that I am not a supporter of the soda tax, for all sorts of reasons, particularly because it doesn’t tax most items containing sugar and it taxes some items that are not unhealthy in terms of sugar. I’ve bee writing about the soda tax for almost ten years, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, and How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?.

Within the past few days I’ve become aware of another flaw in this sort of tax. When reading this commentary objecting to Chicago’s march into the soda tax world, I learned that people who request ice in fountain drinks will end up paying tax on the ice. Why? According to supporters of the one-cent-per-ounce tax, the inclusion of ice is discretionary and the amount is not easily measured. Thus, the tax on a 20-ounce drink will be computed based on 20 ounces, even if a portion of the cup is filled with ice. One can argue that the tax is not technically a tax on the ice. The tax is computed based on 20 ounces, but it is applied to the soda put into the cup. If ice is in the cup, then there is less than 20 ounces of soda in the cup. By imposing a tax of 20 cents on, for example, 10 ounces of soda, the city is imposing a tax at the rate of two cents per ounce. Surely there is a violation of some Illinois law when two similarly situated consumers are charged a tax at two different rates on the same product. I doubt, though, that this problem will stop the Chicago soda tax from going into effect next week. Why would it? None of the other flaws have caused the designers of the tax to stop and think logically about the problems they claim to be solving and the way in which they are going about it.

Readers of this blog know that I am not a fan of a tax aimed solely at soda or soda and sugary drinks. I’ve written about this issue in a series of posts, beginning with What Sort of Tax?, and continuing in The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, and Soda Sales Shifting?. My criticism of soda taxes and sugary drink taxes is that there are all other sorts of food items that contribute to excessive sugar intake, and the obesity and adverse health effects that the advocates of these taxes claim to be trying to reduce. I have also criticized the disconnect between the tax and public health improvement.

Now comes a report that the enactment in Mexico of a soda tax that meets the demands of the soda tax advocates did cause a reduction in the consumption of soda, particularly among lower income individuals. This resolves the argument between those who claim a soda tax would reduce soda intake and the soda industry which claims that soda taxes would not deter soda consumption. I’ve never thought this issue deserved attention, because it doesn’t require rocket science or an experiment in Mexico to figure out that an increase in a tax on an item will reduce consumption of that item unless the item is an absolute necessity or unless the black market finds a way to provide the item while evading the tax.

What remains undetermined is whether a reduction in soda consumption will reduce obesity and other adverse health effects. It will take many years to figure this out. It will not be easy. Why? Because there are multiple variables in the causation of obesity and other adverse health effects. It is not unlikely that people who find soda to be too expensive because of the tax will spend their dollars on pies, cakes, candy, doughnuts, cookies, ice cream, and similar items. Because it is absurd to think that taxing soda consumption out of existence will cause significant decreases in obesity and other adverse health effects, any tax attack on bad health habits would need to be far-reaching. And, of course, making a tax attack that far-reaching would be counterproductive in many ways, and poses all sorts of policy concerns. Though advocates of the soda tax point to tobacco taxes as the reason for reduction in the use of certain tobacco products, it is far more likely that the “shock and horror” public service messages and advertisements, or the experience of watching someone die from tobacco-induced cancer, has a much stronger effect on behavior.

For almost a decade I have been criticizing the so-called soda tax. It fails to get my support because it is both too narrow and too broad. It applies to items that ought not be subjected to this sort of “health improvement” tax, and yet fails to apply to most of the food and beverage items that contribute to health problems. I have written about the soda tax for several months short of ten years, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, and What Is a Successful Tax?. And now, when it comes to Philadelphia’s soda tax, it turns out that my criticism failed to make a difference. As reported in numerous places, including this report, the Pennsylvania Supreme Court upheld Philadelphia’s right to impose the tax, rejecting the argument that the tax is a second sales tax on the items subject to it. A double sales tax is prohibited by Pennsylvania law, and by concluding that the Philadelphia soda tax is not a double sales tax, the court removed the last obstacle to its continued imposition and the spending of the revenue it raises.

In upholding the soda tax, four of the six Pennsylvania Supreme Court justices concluded that the soda tax was not a second sales tax because it is imposed on the distributors of the taxed items and not on the consumers, even though the distributors pass the tax onto the consumer. This is the sort of distinction drawn by lawyers that aggravates many non-lawyers. Technically, the court is correct. The court noted the tax is imposed even if the item on which the distributor paid the tax is not sold to a consumer.

The door is now open for Philadelphia to enact a “store exit” tax on stores for the privilege of allowing customers who entered the store to leave the store, based on the amount of money spent in the store by the customer. The tax would not violate Pennsylvania law because it would not be a double tax. Why? Because it would be imposed on the store and not on the consumer. To those who suggest that no one would ever propose or enact such a tax, I say, don’t be so confident. There even has been a to tax the air that people breathe. And I suppose at some point a tax on inhaling air will be treated as different from a tax on exhaling air, perhaps justified as not a double tax because the chemical content of inhaled air differs from the chemical content of exhaled air.

It’s outcomes and suggestions like these that inspire the anti-tax crowd. That’s sad, because opposition to all taxes because of one or two bad taxes is like disliking all people of a particular background because a few people of that background have behaved badly. If more people informed themselves about taxes and participated eagerly in the tax enactment and amendment process, the nation could end up with a much more rational tax system than now exists. But that requires giving reasoning skills priority over emotional reactions. Will that happen?

It has been a while since I last wrote about the Philadelphia soda tax. As readers of this blog know, although its advocates continue to praise its existence, the soda tax fails to get my support because it is both too narrow and too broad. It applies to items that ought not be subjected to this sort of “health improvement” tax, and yet fails to apply to most of the food and beverage items that contribute to health problems. Very little of its revenues are directed into health improvement efforts. Though I haven’t paid much attention to the tax during the past year or so, I have written about the soda tax since 2008, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, and Putting Funding Burdens on Those Who Pay the Soda Tax.

In the meantime, as summarized in this article, academic and business researchers have studied the impact of the tax. Advocates of the tax and opponents of the tax have found reasons to support and object to each of the studies, almost always reflecting an alignment between their views and the outcome of the study. Generally, it appears that stores have passed some or all of the tax on to customers, sales of beverages containing soda have dropped, and some customers have shifted their shopping to locations outside the city where the tax does not apply, causing sales at stores outside the city limits to increase.

Now comes news that the owner of a Shoprite grocery store in West Philadelphia will close. The owner has explained that because of the soda tax, revenue at the store has dropped from $30.5 million in 2016, before the tax went into effect, to $23.4 million in 2018. The store is just blocks from the city limits, and it would be no surprise to learn that when people go to a store outside the city to avoid the soda tax they also purchase everything else on their grocery shopping list. The Shoprite’s owner concluded that the store has become unprofitable, losing more than $1 million each year since the tax went into effect. This Shoprite is not the owner’s only city grocery store, as he owns six other stores in the city. Those stores also have suffered revenue decreases but not to the extent of the store within blocks of the city limits.

The impact of the closure is unhealthy. The owner had opened this store and the others in what are called “food deserts,” places in cities where access to fresh groceries is limited or non-existent. Customers who shopped at this store despite the soda tax because they lack transportation to stores six, ten, or fifteen blocks away now face serious challenges in finding places to shop for food, even though the owner of the store has suggested he will offer ride shares. Employees of the closed store will be transferred to the owner’s other stores, but as employees of those stores leave, they will not be replaced, adding to the 200 positions already left unfilled because of slumping sales at those other stores. These are rather high prices to pay for a program that is generating less revenue than projected, and that has seen its projected revenue revised downward several times.

A spokesperson for the mayor, the chief cheerleader for the tax, responded by claiming that there was no “evidence that the tax has had any impact on sales.” The evidence I see is rather clear, so it would be helpful to know what sort of evidence the mayor seeks. The spokesperson pointed to several of those studies summarized above, but those did not focus on any particular store or area of the city, but rather looked at overall trends. The mayor continues to insist that because the tax is imposed on beverage distributors, they could absorb it rather than pass it on to customers, but the practical reality of the tax is that it gets passed on to customers.

Imagine if the tax was imposed on all items containing substances harmful to health, and not just beverages that contain sugar. Imagine if the tax did not apply, as it does, to items that are not harmful to health. The impact of the tax would be much less significant, because it would be spread over a much larger array of unhealthy food items, such as doughnuts, pastries, cakes, bacon, cheese curls, candy, and other items that contribute as much, if not more, to the poor health of America as does soda. Imagine if the revenue generated from the tax was used to improve health habits, dietary decisions, and medical care. Imagine if there was a connection between the impact of the tax and the purposes to which its revenues were dedicated. Imagine.

When a person favors both good health and fairness in tax policy, as I do, the soda tax presents a conundrum. If, as its proponents argue, a soda tax reduces the consumption of health-damaging sugar, then health advocates ought to support it. But because soda is far from the only item that contributes to sugar-related health problems, tax policy advocated ought to oppose the soda tax. For me, the fairness concern trumps the health concern, particularly because I do not think the soda tax generates a sufficient reduction in unhealthy eating and drinking habits. I have written about the soda tax in numerous commentaries, beginning with What Sort of Tax?, and continuing in The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, and Taxes, Consumption, Soda, and Obesity.

Now comes a report that a soda tax proposal is being considered for a June 2016 vote in Davis, California. The soda tax is one of three possible taxes being considered to raise money for public works projects. The business community opposes the tax. City council has requested a study to explore the consequences of enacting a soda tax. Some opponents claim that people should not be punished for choosing to spend their disposable income as they see fit. The problem with that position is that when people make choices harmful to their health, the costs of dealing with the ensuing health issues are spread through insurance over society generally. The better argument is that no one has yet proved a soda tax reduces health problems. The Davis city council already has enacted an ordinance requiring restaurants to offer milk and water as the default beverage for children when drinks are included in the meal. It’s too bad parents aren’t already requiring their children to drink milk and water. Some are, but many aren’t.
One member of the council, referring to another California city that recently enacted a soda tax, stated, “Just because Berkeley did it doesn’t mean we need to do it.” That’s true. It would make sense to imitate Berkeley if the Berkeley soda tax improved the health of Berkeley residents. Has it? According to this commentary, it’s too soon to tell. It could take years to acquire sufficient data to answer the question. Perhaps an answer could be found if there were some way to compare how much each person in Berkeley weighed when the tax went into effect, and how much weight, if any, each person lost within the year that followed. That’s not going to happen. Berkeley is trying to gather information about residents’ health, in order to ascertain the impact of the tax, but it will be a while before answers can be offered with confidence.

One huge difference, though, between the Berkeley soda tax and the one being proposed in Davis is that Berkeley is funneling revenues from the tax into health education and health improvement programs. Davis plans to use the revenue for general purposes, which strengthens the arguments of those who see the proposal as a revenue grab.

Though its advocates continue to praise its existence, the soda tax fails to get my support because it is both too narrow and too broad. It applies to items that ought not be subjected to this sort of “health improvement” tax, and yet fails to apply to most of the food and beverage items that contribute to health problems. I have written about the soda tax for almost ten years, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, and Is the Soda Tax and Ice Tax?.

Recently, as described in this story, the Philadelphia City Controller conducted a survey of businesses in the city to determine the impact of the tax. The Controller contacted 1,600 businesses and 741 replied. Of those 741 businesses, 88 percent suffered revenue losses since the tax went into effect, and for almost 60 percent those losses exceeded 10 percent. One store saw its revenue drop 70 percent. This is not surprising. When people go outside the city limits, which in some cases means crossing the street, and in others, crossing a bridge, they not only shift their soda purchases to another business, they also shift other purchases.

Though some elected officials in Cook County, Illinois, which includes Chicago, followed Philadelphia’s example in enacting a soda tax, just two months later they had seen and heard enough. After some of those who had voted for the tax changed their minds, another vote was held and the tax was repealed. Apparently they didn’t wait for an extensive survey of businesses.

Defenders of the tax pointed to the various programs funded by the tax in an attempt to demonstrate positive economic impacts of the tax. Those impacts, even if they are as substantial as claimed, do not substitute for the need to have a connection between what is being taxed and what is funded by the tax. Do drinkers of certain beverages have some sort of deeper responsibility to fund pre-K schools than do people who drink other beverages or eat certain foods? Are the drinkers of certain beverages the only ones who benefit from the expansion of pre-K school programs?

The controversy over the latest soda tax proposals in Philadelphia continues without respite. If I were to publish a reaction to every comment and news development concerning soda taxes, this blog would become immense, quickly. So I am selective when I see or hear soda tax information and opinions. I have been sharing my views on the soda tax for almost a decade, starting with What Sort of Tax?, and continuing through The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, and Can Mischaracterizing an Undesired Tax Backfire?

Several days ago, Dr. George L. Spaeth of Philadelphia, sent a letter to the editor of the Philadelphia Inquirer, in support of the 3-cents-per-ounce soda tax proposal offered by the mayor, and in opposition to a one-cent-per-ounce counterproposal from the president of City Council. Dr. Spaeth justifies the soda tax as follows:

Many people do not understand the harmful effects of sugar, including weight gain and diabetes. There is an epidemic of obesity and diabetes in Philadelphia. People who are significantly overweight have a poorer quality of life, shorter life expectancy, and more illness. We all have needs and wants. Drinking beverages containing sugar is a want, not a need.

Though the doctor is correct in pointing out the disadvantages of being overweight, in asserting that sugary beverages are a want, not a need, and in identifying sugar as a cause of weight gain, he, like so many others, treats sugary beverages as though they are the only ingestible items containing sugar. Donuts contain sugar, donuts are a want, not a need, and yet donuts escape being a tax target of those promoting sugar-free health. The same can be said of cakes, cookies, pies, candy bars, and a long list of foods. The same can be said of coffee and tea to which a person adds sugar, because the tax would not apply to sugar sold in bags for use in adding to food and drink.

When, several months ago, another letter writer supported the revival of a soda tax proposal by the mayor of Philadelphia, I stressed the inequity of focusing on sugary beverages as one of the reasons the proposal was flawed. In Soda Tax Debate Bubbles Up, I wrote:

Another issue is whether a tax characterized as designed to improve health should be limited to just one of many allegedly unhealthy dietary items. The letter writer conceded this point by noting, “And evaluate your health status - and who will benefit from the tax.” The letter writer offered no proof that soda is more unhealthy than many of the other items, particularly those containing sugar, fats, and cancer-causing substances, that people ingest.

I’ve yet to see any explanation or justification for subjecting only certain sugar-containing items to a tax whose supporters claim is designed to reduce sugar ingestion. Reducing the consumption of sugary beverages is meaningless if those are replaced by other items containing sugar. If sugar is the problem, those craving it will seek it wherever they can find it.

Taxing only sugary beverages when trying to reduce sugar consumption is like requiring inspection of tire treads but not brake linings when trying to reduce automobile accidents caused by traction failures. Failing to look at all aspects of a problem is a major contributor to unwise legislative proposals and wacky legislation. If the problem is sugar, tax sugar. If the target of tax are beverages, what is the problem?

As I pointed out in the update to The Broccoli and Brussel Sprouts of Taxation, Philadelphia City Council last week opted for an increase in the real property tax rather than the enactment of a tax on sugary beverages. In How Mayor Nutter’s Soda-Tax Proposal Lost Out to Property Tax, Philadelphia Daily News writers Catherine Lucey and Jan Ransom explore the impact of politics on tax policy debates. According to the article, when Council met, it appeared that neither tax proposal had the necessary nine votes. Allegations that the mayor’s team made promises for support and threats for opponents were neither confirmed nor denied. By early afternoon, nine votes were lined up for the so-called soda tax. One member of council explained that he left the negotiations momentarily, and when he returned, the ninth vote had disappeared. It seems that the lobbyists working against the soda tax had managed to persuade someone not to go forward with an affirmative vote. In the meantime, another member of Council opted to support the property tax rather than the soda tax, but on condition that one of the property tax advocates on Council vote for a sick leave ordinance that has absolutely nothing to do with the tax issue. The Mayor then pressed for a real property tax hike that would raise more revenue than the soda tax would have raised, but Council rejected that demand. Is it any wonder that municipal tax policy is a mess?

The disconnect between careful analysis of a tax proposal and the realities of how legislators, and those pushing them to act one way or another, is no more evident than in the post-defeat lamentation and promised resurfacing of the soda tax proposal by Jeff Gelles. In Consumer 11.0: The Soda Tax’s Time Will Come, Gelles predicts that the soda tax eventually will be enacted, despite opposition from soda manufacturers, distributors, retailers, and truck drivers, because “it makes too much sense for the rest of us.” To his credit, Gelles addresses two questions that I have been asking throughout my series of soda tax postings (What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation), namely, why tax sugary beverages and not other items containing sugar, and why focus on sugar and ignore other ingredients that can be unhealthy?

Gelles likens “Big Soda” to “Big Tobacco” in his attempt to classify soda as a pernicious item. He cites a Yale University researcher whose target of “high-calorie, low-nutrition foods” has been twisted into a campaign against one specific type of such items. This researcher claims “[Soft drinks are] completely empty calories. I mean, even a Twinkie has some nutrition.” Gelles claims that research “suggests . . . that people’s bodies react differently to calories consumed in sweetened drinks than in food [because l]ess sated by the sugary liquids than by solid food, they are more likely to consumer additional calories beyond their basic needs.” Gelles lumps soda with “pollution and tobacco” as “externalities” that should be taxed to reduce “public harm that everybody must pay for.” Gelles quotes a University of Pennsylvania economist for the proposition that sugary drinks “imposes costs that we all may have to pick up” and that “it’s very likely that your future self would prefer that the government impose taxes to prevent your young dumb self from destroying the body that your future self will inherit, the same way that my future self would want higher cigarette taxes to prevent my current self from destroying my lungs.”

The problem with these attempted explanations for why sugary beverages are singled out in the “we need revenue, let’s tax something” version of the defeated proposal is that they rest on erroneous factual assumptions, conflate information, and ignore reality. First, though moderate and sensible use of sugar does not trigger obesity and other illnesses, there is no such thing as moderate use of tobacco because any use of tobacco ramps up the risk of cancer and other disease. Second, sugar is not the only substance that, consumed excessively, causes health problems. Excessive intake of fat, for example, is just as dangerous, if not more so. Even water can be deadly, as evidenced by people who have died in foolish water drinking contests. Where is the logic behind “Sugar is bad, tax it, fat is bad, don’t tax it”? The notion that people will take in more sugar drinking soda because soda is not filling ignores the fact that gulping down a huge amount of liquids will leave a person with less stomach room, and less desire, to take in food. Does it make sense to encourage the ingestion of Twinkies rather than soda because it’s better to fill the stomach with sugar and fat? Finally, the notion that cigarette taxes has cut smoking is debatable, particularly with respect to tobacco use among younger people, who supposedly are the targets of the “tax will teach you a lesson” proponents.

From a health perspective, the target needs to be the items originally indicted by the Yale researcher, namely, high-calorie, low-nutrition substances. The issue isn’t so much the item, other than the true poisons such as nicotine and trans-fats, but the quantities being consumed. Even low-calorie, high-nutrition foods can be dangerous if consumed in excess. The focus on soda, intense as it is on the part of the soda tax advocates, suggests something more is at work. I wonder if we would be seeing “donut tax” proposals offered with the same zealousness had it been donut manufacturers who tossed money at school boards to install vending machines in the schools. I wonder.

All of this suggests that what people have learned in civics classes – few and far between as they are – about how legislation gets enacted is woefully inadequate. Legislation, including tax legislation, is far more influenced by back-room deals, promises, threats, and proliferation of overhyped allegations than it is by careful analysis, research, and thorough consideration of the bigger picture and long-term consequences. I could mention the sausage factory, but I won’t. It might just give someone an idea of something else to tax.

During the past week, two judicial decisions have been handed down that deal with issues I have previously discussed on MauledAgain. It is likely these are not the last chapters in either story.

During the past eight years, I have described the various failings of the so-called “soda tax” enacted by Philadelphia, which applies to items other than soda, does not apply to certain soda products, and also applies to some, but not all, products containing sugar. The commentaries started with What Sort of Tax?, and continued with The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, and Gambling With Tax Revenue. Last week, according to this report, a Philadelphia Common Pleas judge dismissed a challenge to the soda tax. The judge rejected the argument that the tax was preempted by the state sales tax and violated state law requiring items to be taxed at the same rate. He decided that the soda tax and the sales tax are fundamentally different because one is imposed on sales and the other on distribution. He also rejected the argument that applying the tax to items purchased through food stamps would violate the prohibitions on subjecting food-stamp-financed purchases to sales tax, by reasoning that the soda tax is not imposed on purchases but on distributions of soda. The losing plaintiffs promise to appeal.

Earlier this month, in So How Long Does It Take to Determine a Tax Liability?, I described a tax dispute between Comcast and the state of California that had dragged on for 17 years. Last week, according to this report, Comcast’s challenge to the tax asserted by California was denied. The court concluded that the termination fee received by Comcast on account of a losing merger bid constituted business income subject to California tax. Comcast is considering an appeal. In the meantime, Pennsylvania tax authorities continue to review the extent to which Comcast owes tax to Pennsylvania on account of the transaction.

Just as tax is a sure thing, so too are tax disputes and tax litigation. And that’s part of the reason tax professionals are busy. I expect them to continue to be busy.

The re-introduction of a soda tax proposal in Philadelphia has triggered a outpouring of objections, support, questions, criticisms, and re-evaluations. For example, as reported in many stories, including this one, a close look at the proposed legislation revealed that the per-ounce rate on soda sold from fountains would be higher than the rate applied to soda sold in bottles. Proponents of the tax promised to review and revise the language of the bill. The debate over soda tax proposals has been underway for almost a decade, and this blog has not been without reactions, starting with What Sort of Tax?, and continuing through The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?,
What Gets Taxed If the Goal Is Health Improvement?, and The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just A Need for More Revenue?

Two recent developments involving the Philadelphia soda tax proposal, one a letter of support and one a campaign in opposition, not only caught my eye but activated some of my brain cells. Both instances left me disappointed in how some approach the debate.

Earlier in the week, I spotted a letter to the editor of the Philadelphia Inquirer. According to the letter writer, “When I choose to eat out in Philadelphia, I pay the tax. When I decide to have a drink, I pay the tax. So, when you decide to have soda, pay the tax. It's your decision.” This approach misses the point. The issue isn’t what someone should do once the tax is enacted, if it is enacted. One issue is whether the tax should be enacted. The fact that someone pays a sales tax or an alcohol tax does not add weight to the argument for or against a soda tax. Another issue is whether a tax characterized as designed to improve health should be limited to just one of many allegedly unhealthy dietary items. The letter writer conceded this point by noting, “And evaluate your health status - and who will benefit from the tax.” The letter writer offered no proof that soda is more unhealthy than many of the other items, particularly those containing sugar, fats, and cancer-causing substances, that people ingest.

At about the same time, I heard a radio spot on a local radio station, and upon further research discovered that a group had been organized to campaign against enactment of the tax. What had caught my ear was the characterization of the tax as a “grocery tax.” According to the organization’s web site, No Philly Grocery Tax, the tax would be a “3¢ per ounce tax on everyday grocery items.” Sure, the site then adds “like sodas, sports drinks, juice drinks and some teas” but the initial characterization will cause people to think that a proposal is underway that will tax everything in their shopping cart. Once that seed is planted in most people’s brains, it’s difficult to root it out. Even if the tax was imposed on all unhealthy food and drink items, it still would not be a tax on groceries, because it would not reach a long list of healthy items.

Simplistic reactions and mischaracterizations, no matter from which side of an argument, do not serve the public well. Though they can help advance the cause of those who toss them about, they also can backfire. The ease with which people not only fling such accusations but also readily accept and repeat them contributes to the sad state of this nation’s public and private political debate in the twenty-first century. It’s time for those involved in the soda tax debate, as well as any other political discussion, to focus on the facts and to stick with logic.

As expected, the Philadelphia soda tax continues to be controversial. Controversy has accompanied it since its proposal, as I’ve described in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, and When Tax Revenues Continue to Be Less Than Required.

In my last commentary, I shared some revenue data with respect to the soda tax. In January, the tax generated $5.7 million in revenue. In February, the tax generated $6.4 million. Additional information has been provided. In March, according to this report, revenues reached $7 million, but in April, according to this recent report, revenues fell to $6.5 million. Thus, for the first four months of the year, the city collected $25.6 million in revenue. At that rate, total revenue for 2017 will reach $76.8 million. That’s woefully short of the $91 million that the city has already committed to spending from soda tax revenues. A bit of arithmetic reveals that to reach $91 million for the year, revenue for the remaining eight months – including May, for which figures have not been released –needs to be $65.4 million. That amounts to $8.175 million per month, an amount more than $1 million higher than the city’s best month to date, and almost $2.5 million higher than its worst month. It is $1.775 million per month higher than what the city has averaged during the first four months of the year. It’s difficult to construct scenarios under which revenues will reach an average of $8.175 million per month.

There is one silver lining in this mess. Philadelphia’s experience, along with those of other states and cities, demonstrate why local and state approaches to transaction taxation needs serious reform. When the nation was far less populous, greater distances separated towns and villages, mail order and internet shopping weren’t even dreams in their inventors’ eyes (because they had not yet been born), a state or town could establish a tax policy without too much concern about the tax policies in other places. Now states and towns engage in tax credit battles with each other, and technology, including the automobile, coupled with the population growth in the spaces once separating localities makes it easy for people to escape most types of transaction taxes. Tax policy in a global age needs to be something more unified than the disparate decisions of tens of thousands of states, counties, cities, towns, school districts, sewer authorities, and other revenue entities that reflect the long-gone environment of centuries ago.

In the meantime, one can wonder where the first blink will occur. Will it be the repeal of the Philadelphia soda tax, or the rejection of colonial era approaches in favor of twenty-first century tax policy reality? My guess is that another of my soda tax commentaries will show up before either of those two thing happen.

My objections to so-called “soda taxes” are well known. The stated goal does not match the scope of the tax, which is touted as a means of reducing sugar consumption but which fails to tax every form of sugar consumption other than certain beverages. Even if the revenues are dedicated to worthwhile purposes, the tax is flawed. I have explained why this particular tax is flawed in a series of commentaries, beginning with What Sort of Tax?, and continuing through The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, and Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places.

In recent days, the Philadelphia soda tax proposal has been modified in several ways. As reported in many news stories, including this one, the tax has been modified to include diet soda. Someone please explain to me how sugar consumption is reduced by imposing a sugary drinks tax on drinks that do not contain sugar, while leaving drinks containing sugar, such as coffee purchased at Starbucks into which all sorts of sugar and sugar-based substances are added free of taxation. As also reported, not all of the revenues from this tax will be devoted to the wonderful projects paraded in front of City Council and citizens as justification for the tax, because some of the revenues will be added to the city’s general fund. Neither of these changes does anything to generate more support for the tax, and they certainly make it easier for opponents to demonstrate the flaws of the tax.

What makes this particularly annoying is the manner in which the tax has been championed by its supporters. Advertised as a necessary evil to fund pre-kindergarten programs, community schools, parks, and recreation centers, at the eleventh hour, actually fifteen minutes before the Council vote, the city’s finance director announced that some of the revenues would be used for the general fund. If a business operator in the private sector did something like that, bait-and-switch charges would be hovering nearby. As one critic put it, the city “administration misled the public.”

In The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, I wrote:

One of the arguments I offer in rejecting a tax limited to soda or soda and some sweet drinks is that such a limitation is inconsistent with the avowed goal of improving health. I have suggested that these taxes are not much more than an attempt to raise revenue, with lip service paid to issues of health. I have contended that if health improvement is a serious goal, and assuming that a tax would actually change eating habits, the tax needs to reach more than soda, and should extent to include items such as cookies, cakes, donuts, candy bars, and junk food.

The fact that the Philadelphia tax applies to beverages that do not contain sugar puts into the spotlight the absurdity of the entire soda tax movement. If, and I emphasize if, society is in favor of a “sin tax” on sugar, then advocate a tax that applies to all sugar-containing items and only sugar-containing items. What is happening in Philadelphia is counterproductive to the claimed health goals of the soda tax lobby.