Pennsylvania: Philadelphia becomes second city in the US to tax sugary drinks

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Last week, the Philadelphia City Council passed the Sugar-Sweetened Beverage Tax imposing a 1.5 cents tax per fluid ounce on the distribution of beverages like soda, fruit drinks that are not 100 percent fruit, sports drinks, flavored water, energy drinks, presweetened coffee and tea, and non-alcoholic beverages intended to be mixed into an alcoholic drink for sale at retail. It is expected to raise $91 million annually in new revenues. The new law, which also requires reporting of the amounts sold and taxes due, will take effect on Jan. 1, 2017. 

Philadelphia’s Department of Revenue posted a web page with all the particulars.

In March when Philadelphia Mayor Jim Kenney gave his first budget address, he sought a rate twice as high to pay for pensions, schools, and investments in community infrastructure and energy efficiency. At the time, a journalist wondered whether Mayor Kenney was “completely off his rocker;” the 1 cent per ounce soda tax in Berkeley, California, the only other city in America that has levied one, is much less than the mayor proposed. 

Although the Council nixed Mayor Kenney’s plans to use some of the $91 million for pensions and energy efficient government building projects, a article asserted that $16 million would nevertheless be used for “previously unadvertised spending.” In its final version, the bill allocates the tax revenues from fiscal 2017 through 2021 as follows:
  • 49 percent, or $199.3 million: pre-kindergarten education
  • 12 percent, or $48.8 million: “rebuild” program for rebuilding and repairs of community centers, recreation centers, community schools
  • 9 percent, or $38 million: community schools
  • 6 percent, or $4.5 million: healthy beverages tax credit
  • 3 percent, or $14 million: parks and recreation
The final 20 percent, or $81.4 million, will go toward new funding added during negotiations, the beneficiaries of which are:
  • Employee benefits: $6.7 million
  • Health and Human Services: $4.375 million
  • Juvenile Lifers Without Parole: $1.6 million
  • Community College: $1 million
  • Cultural institutions: $915,000
  • Community Life Improvement Programs: $700,000
  • Internal Services: $420,000
  • City Commissioners – presidential election: $365,000
  • Recreation Activities Fund: $215,000
  • Community Development: $210,000
  • Community Legal Services: $150,000
  • Board of Revision of Taxes: $100,000
Mayor Kenney cheered the law’s passage as a “historic investment in our neighborhoods and in our education system [that makes] quality, affordable pre-K, community schools and systemic improvements to parks, rec centers and libraries a reality.” National Public Radio pointed out that many others did too, like religious leaders, public health advocates, teachers, and some business owners.

On the other hand, the American Beverage Association (ABA) has promised to sue the City of Brotherly Love on the grounds that the new tax is not just against the law, but also discriminatory and highly unpopular. The ABA asserts that “[s]imilar tax proposals have been rejected 43 times across the country in the past eight years, including twice in Philadelphia.”

In our March 11, 2016, article, we explained that there are good reasons to tax sugary beverages, mainly related to mitigation of diseases suffered by people who consume diets with a lot of added sugar, like diabetes, heart and liver disease, obesity, and tooth decay. But a Tax Foundation economist dislikes using a soda tax to pay for schools: “[i]f public pre-K is worth funding, it’s worth funding with real, broad based taxes like income and sales taxes. Those taxes provide much more stable revenue. You can’t lean on a gimmick like this to sustain an ongoing important educational program.”

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