by Jared Brey and Holly Otterbein | June 8, 2016 7:30 am
For the third time in less than 10 years, Philadelphia City Council is reaching the end of a debate on whether to impose a tax on soda and other sugary drinks. Former Mayor Michael Nutter tried twice to get a soda tax approved, pitching it primarily as a public health initiative with the added benefit of raising revenue. Both times, after intense lobbying from the soda industry, Council rejected the proposal.
Now, Mayor Jim Kenney is hoping the third time’s the charm. In his first budget, Kenney is calling for a three-cents-per-ounce tax on sugary drinks. That’s higher than the rates Nutter asked for, but Kenney, despite occasionally pointing out that the tax would help fight obesity, says that this proposal isn’t about public health. It’s about money, he says — money for programs that many Philadelphians and City Council members say they support.
Unless you’re a City Council member, you don’t get to vote on whether to approve, reject, or amend the soda tax. But that hasn’t stopped dozens of industry lobbyists and advocacy groups from trying to sway the outcome. We’re likely to find out where it will land Wednesday, when Council holds its last scheduled budget hearing before taking a summer recess. At the moment, lawmakers seem to be uniting around a compromise soda tax, but that could very well change as anti-tax advocates turn up the pressure today.
Not sure how to feel about it all? Here’s the deal.
What is it?
Kenney’s proposal would add a tax of three cents per ounce on all sugar-sweetened beverages. That includes all non-alcoholic drinks that list a “caloric sugar-based sweetener” like glucose or high-fructose corn syrup: soda, sweetened iced teas, energy drinks, sweetened coffee drinks, and so on. It excludes baby formula and any drink that has milk as its primary ingredient. It wouldn’t apply to diet sodas or drinks you get at a coffee shop and add your own sweeteners to. Pre-packaged stuff and fountain sodas, mainly.
Opponents of the soda tax call it a grocery tax. It’s true that you can buy soda and other sweetened drinks at the grocery store, but a soda tax is only a grocery tax in the sense that a tobacco tax is a tax on produce. If we’re being really generous, we can say that a “grocery tax” is a less accurate way to describe Kenney’s proposal. Since this is the No-Bullshit Guide, we’re going to go ahead and say get right out of here with that bullshit.
How much money would it raise?
The Kenney administration estimates that a three-cents-per-ounce soda tax would raise $95 million a year. Such a tax would add 36 cents to the cost of a 12-ounce can of soda, and around $2 to the cost of a two-liter bottle.
The administration based its estimates on studies by The Rudd Center at the University of Connecticut, which account for declining consumption of sugary drinks as the cost rises due to the tax. The Inquirer’s editorial board said that it believes the estimates are “thorough and conservative.” Several members of City Council and the soda lobby have criticized the soda tax as being unsustainable, however, saying that the continued decline of soda consumption will correspond to declining revenues. The Kenney administration’s budget projections have the tax revenue declining by only about $20,000 a year in each of the next five years.
What would the soda tax raise money for?
Kenney wants to use the money raised from the soda tax to fund three core priorities. The biggest of those is the expansion of pre-kindergarten classes for kids in the city. The administration expects to pay an average of $51.2 million a year toward pre-K expansion over the next five years. They plan on doing this by funding private pre-K providers, though there’s been some disagreement about whether that’s the best way to go. Council President Darrell Clarke thinks the School District of Philadelphia should be in charge of expanding pre-K, and introduced a budget amendment that would give the district the money that Kenney had set aside for private providers.
Kenney also hopes to use soda tax revenue to fund the establishment of 25 community schools over the course of four years. Community schools are neighborhood schools that provide other health and social services to residents who live nearby, with the specific programming at each facility being determined by the needs in the area. The initiative to create community schools was an early priority for Kenney after he won the general election in November. The administration expects to spend around $40 million on community schools over the next few years.
Finally, Kenney wants to direct some of the soda tax revenue toward a plan to make physical improvements to hundreds of parks, recreation centers and libraries. The administration is pursuing $300 million in bonds backed by several hundred million more from private foundations and other government sources to fund the plan. Some of the soda tax revenue would be used to pay down the debt on the bond sales.
Will Council approve a three-cent tax?
It seems highly unlikely that City Council will approve a full three-cent-per-ounce tax. As of Tuesday, though, lawmakers seemed to be coalescing around a 1.5-cent soda tax that includes diet beverages. Councilwoman Cindy Bass says there are currently enough votes for it to pass. However, deals like these have fallen apart in the past. In fact, former Mayor Nutter briefly secured nine votes for his soda tax, only to see one of them disappear before a vote was officially taken. Council members have also floated other alternative taxes to fund Kenney’s initiatives that could be part of a final deal.
What alternatives is Council considering?
Cindy Bass was momentarily thinking about introducing a bill that would have raised the property tax by almost 7 percent. According to her office’s projections, it would have generated about $89 million annually once it was fully phased in. Councilwoman Blondell Reynolds Brown has proposed legislation that would enact a 15-cent tax on beverage containers. Clarke also sent a memo to lawmakers last week that laid out a number of different methods to fund pre-K and Kenney’s other initiatives, including a combination of a soda tax and container tax as well as the aforementioned soda tax that includes diet beverages.
How would Brown’s container tax work?
Reynolds Brown’s bill would tax most beverage containers that hold at least seven ounces of liquid. That includes soda, diet soda, water, tea, coffee, juice and energy drinks. It does not include baby formula, milk products or fountain sodas.
How much would money would the container tax raise?
Reynolds Brown’s office circulated a memo that says the tax could raise anywhere from $60 million to $94 million, depending on how many beverages are bought by consumers and how well the city collects the tax.
That’s a really wide range, and the mayor’s aides argue that Reynolds Brown’s $94 million estimate is completely inaccurate. For one thing, they rightly note, it assumes that Philadelphians will buy more beverages per capita than Baltimore residents did after that city passed a 2-cent container tax in 2011 (and then increased it to a 5-cent tax in 2014). They also say that it doesn’t take into account the fact that people will likely purchase fewer drinks as the price goes up. Reynolds Brown’s office argues that there will be a very slight drop-off in consumption, if any, due to the fact that a container tax would impact such a broad array of products. Her team also says that its lower projections of $60 million to $77 million are based on the assumption that Philadelphians will buy as many beverages per capita as Baltimore residents did in 2013-14.
The Kenney administration believes that Reynolds Brown’s estimate of $60 million is reasonable, but it has attacked the proposal for bringing in $35 million less than what it says it needs to fund pre-K, community schools, and a parks overhaul.
Is the soda tax regressive?
Regressive taxes, as opposed to progressive taxes, are those that have a greater impact on the lower end of the income scale than on the higher end. Flat taxes like sales taxes are often considered regressive because poor citizens pay the same rate as rich ones, handing over a greater share of their smaller incomes in the process.
The administration insists that the soda tax isn’t regressive, because the distributors are responsible for paying it rather than the consumers. But studies have shown that the poor drink soda and other sugary drinks at higher rates than the wealthy, and it’s likely that the distributors will pass at least some portion of the cost to consumers. Soda industry magnates have admitted that they would do so, and a study found that up to 70 percent of the tax in Berkeley, California, was passed on to buyers. So a tax that raises the cost of products consumed primarily by lower-income people would be considered regressive by almost any definition.
Politifact thinks it’s regressive. So does Bernie Sanders.
The administration is careful to point out that the tax is optional, however. If you don’t want to pay it, you don’t have to buy sugary drinks. The tax is only regressive, the administration claims, if it’s passed on to consumers and poor people continue to buy soda at higher rates.
Overall, soda consumption is declining. And taxes on sugary drinks contribute to further declines in sales among low-income populations, according to Barry Popkin, an economist at the University of North Carolina in Chapel Hill.
Some soda-tax opponents say that the tax wouldn’t truly be avoidable in some poor neighborhoods. Councilwoman Maria Quiñones-Sánchez, who has come out against the tax, said that some corner stores in her district don’t stock many drinks that aren’t sweetened. People who live in those areas would likely be hit the hardest by the soda tax, Sánchez says.
Is the container tax regressive?
There are two competing theories with regard to this question. The first, which is argued by supporters of Reynolds Brown’s plan, says that a container tax is not regressive because it would raise the cost of a broad array of products that are purchased by people from different socioeconomic backgrounds. Conversely, they say, the soda tax would mostly be paid for by the poor. The second theory, which is put forth by critics of Reynolds Brown’s proposal, says a container tax is actually more regressive than the soda tax because it will be impossible for low-income people to avoid, given that it would tax everything from juice to water.
Truth be told, both of these theories are pretty hypothetical: Neither the Kenney administration nor Reynolds Brown’s office could provide us with data on how the Baltimore container tax has impacted low-income people versus middle-income people and the wealthy.
The soda tax isn’t about health, but what about health?
Philadelphia has one of the highest obesity rates among the country’s biggest cities. And in some poor areas of the city, a majority of children are overweight or obese. Sugary drinks no doubt contribute to that problem, though the soda lobby is quick to point out the obvious: “It is not feasible to blame any one food product or beverage as being a sole contributor to obesity problems considering people consume calories from many different sources.”
A Harvard study claims that Kenney’s soda tax proposal would improve health outcomes in the city. The tax could help 36,000 people avoid obesity every year, and could result in 730 fewer deaths over the next decade, according to the study. (One Inquirer reader wrote a letter in response to coverage of the study, saying that a soda tax would be likely to open an underground market for sugary drinks.)
Meanwhile, critics of the container tax say that, unlike the soda tax, it would have no health benefits. Reynolds Brown recently introduced a bill aimed at addressing this: It would create a tax credit for merchants who stock more healthy beverages than they did in previous years. The problem, though, is that this would make her container tax somewhat like a more convoluted soda tax.
Will the soda industry shed jobs if Kenney’s proposal passes?
Teamsters Local 830, the union that represents some soda-industry workers in Philadelphia, claims that a soda tax would lead to the loss of 2,000 jobs in Philadelphia. Billy Penn fact-checked that claim and rated it false. Most soda companies sell more products than just soda, including items that wouldn’t be taxed, like bottled water. Other studies have found that sugary-drink taxes don’t result in significant job losses.
The Kenney administration has also made the sort of non-sequitur argument that any potential job losses due to the tax would be offset by the jobs created through the initiatives funded by the tax.
Are soda and container taxes legal?
Many people expect the soda industry to sue the city if a sugary drinks tax is passed. The City Solicitor, Sozi Tulante, says he’s confident the city could fight off a legal challenge. He says the same thing about a container tax.
Who supports the soda tax and who opposes it?
So far, several members of City Council have declared they won’t vote for a soda tax at any rate, including Councilwoman Maria Quiñones-Sánchez, Councilwoman Jannie Blackwell, and Councilman Al Taubenberger. The Teamsters are opposed to it. The No Philly Grocery Tax Coalition, which is funded by the soda-industry lobbying group American Beverage Association, is opposed to it. The Republican Party of Philadelphia is against it. Darrell Clarke hasn’t said he won’t vote for it, but he clearly doesn’t like it. Clarke has called the three-cent tax “divisive” and “ridiculous,” and has said it won’t pass Council at that rate. He’s indicated he may vote for a smaller soda tax, or for an alternate proposal. Oh, and the Grover Norquist-led group Americans for Tax Reform is against the soda tax, too.
The Kenney administration is in favor of it, obviously. So is the group Philadelphians for a Fair Future, a coalition that includes a number of local unions, some neighborhood associations, public school advocates, environmental groups, and even some coffee shops. The Sustainable Business Network wants it to happen. Former New York Mayor Michael Bloomberg has thrown some money behind it. John “Johnny Doc” Dougherty and his electricians union Local 98 favors it too, which you’d think might be the game right there.
Who supports the container tax and who opposes it?
Maria Quiñones-Sánchez and Darrell Clarke have both signaled that they might support the container tax. Philadelphians for a Fair Future is opposed to the container tax, as is Councilman Bobby Henon. The Kenney administration is against it too, obviously.
Publicly, the soda industry opposes the container tax. Privately, though, they seem to be singing a different tune: Councilman Mark Squilla said that beverage industry lobbyists have told him that that, if it comes down to the soda tax and the container tax, they would prefer the latter. That makes sense: Under a soda tax, the cost of a two-liter bottle would go up by $2 if distributors passed the full cost onto consumers. On the other hand, the cost of the same product would only go up by 15 cents under a container tax. Bottling mogul and soda-tax opponent Harold Honickman has also floated the idea of a broader container tax, which would be levied on beverages as well as food products.
Who’s throwing money around?
We know that the American Beverage Association and other soda-industry lobbying groups have committed to spending huge sums to kill the soda tax proposal in Philadelphia. Nationwide, they spend millions of dollars a year on government lobbying, according to a variety of reports. Locally, they’ve spent nearly $3 million on an ad campaign against the latest soda tax proposal, according to a report in the Inquirer.
Liberty Bell Beverage PAC, a group that’s registered at the Coca-Cola bottling plant on Erie Avenue in Juniata, has donated more than $100,000 to local political campaigns since 2010, records show. Harold Honickman and his wife Lynne have given hundreds of thousands to local political campaigns as well, according to city records. In 2015, according to a Newsworks report, all members of City Council received campaign donations from soda-industry donors, except for Jannie Blackwell and Helen Gym. Councilman Allan Domb received the most money from the soda industry last year, followed by Maria Quiñones-Sánchez. Mayor Kenney has also received more than $13,000 combined over the past few years from the Honickmans and the Liberty Bell Beverage PAC.
On the other side is Philadelphians for a Fair Future. Michael Bloomberg, the billionaire former New York mayor who sponsored an array of public health initiatives during his tenure, gave $825,000 to support the group’s pro-soda-tax ad campaign in Philadelphia, and suggested he may give more. Texas billionaires John and Laura Arnold, who have helped fund anti-obesity initiatives, are also funding PFF.
But other than those one-percenters, it’s hard to know who’s giving money to Philadelphians for a Fair Future — or how much. The group has said it will disclose its donors, but so far little else is known about who’s giving.
What are the stakes in the soda tax fight, politically speaking?
They’re high. Very high. If Kenney can push a soda tax through, it means that he has major clout in Council. It would also be a big win for John Dougherty — and a huge blow to the soda industry, which has fought off proposed soda taxes here and in several other parts of the country. If a container tax passes, it indicates that Darrell Clarke and his allies are more powerful than the mayor, which is the dynamic that defined former Mayor Nutter’s last term. If Council approves compromise legislation, such as adding diet soda to a 1.5-cent soda tax, the impact on Kenney’s standing will be less immediately clear.
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