Cities Look to Soda Taxes for New Revenue

Cities Look to Soda Taxes for New Revenue

Philadelphia and New York City are the latest municapalities to consider taxes on soft drinks, which officials claim will reduce obesity and raise billions of dollars for government.

Philadelphia’s proposed tax would be two cents per soda ounce, while New York City would put the tax at one cent per ounce.

“An extra 12 cents on a can of soda would raise nearly $1 billion, allowing us to keep community health services open and teachers in the classroom. And at the same time it would help us fight a major problem plaguing our children: Obesity,” New York Mayor Michael Bloomberg said in announcing the proposal.

Budget Aims, Not Health

According to Nate Benefield, director of policy research at the Commonwealth Foundation in Harrisburg, Pennsylvania, the tax proposals are an outcome of budgeting failure, not a plan to improve public health.

“There has been so much fiscal mismanagement that these cities are always looking for new ways to tax people. This tax will hit the poor the hardest—people who are buying soda—and it really is a ploy for new revenue,” said Benefield. “‘We say people should stop drinking soda for their own good’ is a very paternalistic view of what government should be.”

The American Beverage Association estimated the New York tax alone would place 160,000 state beverage industry jobs at risk. In Philadelphia, the tax would add $2.88 to every 12-pack of soft drinks, threatening more than 2,000 beverage industry jobs in the area.

Taxes Don’t Reduce Obesity

Soda taxes have been passed in 33 states, and there is no apparent correlation between these higher taxes and lower obesity rates. The five most obese states, Mississippi, Alabama, West Virginia, Tennessee, and Oklahoma, all have soda taxes.

A 2009 study by Yale University health expert Jason Fletcher, Emory University economist David Frisvold, and Bates College economist Nathan Tefft found although raising prices modestly decreased consumption, it was offset by children switching to higher-calorie whole milk and other sweetened drinks.

The evidence shows “soda taxes could have unintended consequences, and may be an ineffective ‘obesity tax,’” the professors wrote.

“Families are still barely making it from paycheck to paycheck. They are tired of paying more taxes. Adding to their burden with a tax on their groceries should be the last way to tackle city budget problems,” Benefield said.

Taxpayers Will Find a Way

Frank Gamrat, senior research associate at the Pittsburgh based Allegheny Institute for Public Policy, said angry taxpayers will find other means to purchase soda if taxes are raised too far.

“The first thing governments want to do is regulate consumption patterns. They say we will be nice and shapely and thin. They start taxing things like junk food, potatoes, and those kinds of things. You see people going around regulations to get what they want,” Gamrat said.

“It won’t work,” he continued. “They banned alcohol at one point in time. That didn’t work out either. If they are going to look for a way to gain revenue for their bloated budget, that’s not going to work. They will buy soda in New Jersey or Maryland and bring it over the state line.”

Gamrat compared the decision to the failed attempt of the city of Seattle to tax coffee in 2003.

“Seattle decided to tax coffee. Thinking only rich people drink coffee, they taxed it. But people pushed back, and the initiative failed miserably,” Gamrat said.

Only Wallets Lose Weight

According to Dr. Richard Dolinar, senior health care policy fellow at the Heartland Institute and an endocrinologist in Arizona, cities are doing this only because they’re desperate to find new sources of income during the economic downturn.

“They are basically looking at ways to generate revenue for the tax coffers. I think it’s wrong to tax soda pop. Next they will tax Hostess cupcakes and candy, saying, ‘This is bad, so we’re going to tax it,’” Dolinar said. “They are looking for ways to make more money.

“A tax on these products doesn’t mean people are going to lose weight,” he added. “The only thing that is going to lose weight is the wallet.”

Krystle Russin (Krystle@purepolitics.com) writes from Texas.