March 14, 2016

City officials: Tax could reduce sugary drinks consumption by 55 percent

Diet soda and other drinks not pre-sweetened with sugar would not be taxed

Budget Taxes
11032015_soda_iStock Source/iStock

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When Mayor Jim Kenney presented a 3-cent-per-ounce tax on sugary drinks during his budget address earlier this month, he proposed the new tariff would raise about $96 million annually to help fund his plans for a universal pre-K program, community schools, parks and recreation improvements and more. 

Such a tax, which would be the highest in the country, has been criticized by those who point out that Philadelphia tried to pass similar measures twice in the past and failed.

On Monday, however, as they tried to clarify the proposal in the face of such criticism, city officials said they anticipated a nearly immediate 55 percent decrease in the consumption of sugary drinks and explained why this could be the right time to put such a tax to work in Philly.

Rob Dubow, the city's director of finance, and Marisa Waxman, deputy director of policy and analysis for the city's Department of Revenue, broke down how many gallons of sugary drinks Philadelphians drink a year, how much the city could generate in new funding and how the tax proposal is designed to allow for a reduction in consumption due to the new tax. 

As proposed, the tax – which still needs approval from City Council – would go into effect on Jan. 1, hitting distributors with a 3-cent-per-ounce tax on pre-sweetened sodas and drinks.

Diet sodas would not be taxed. 

"It's a sugary drinks tax, and those don't have sugar," Dubow said about diet sodas. 

The Philadelphia Inquirer pointed out on Friday that, currently, the tax would hit fountain drinks harder, at a rate of 4.5 cents per ounce. 

On Monday, Dubow said that was a "holdover" from an earlier soda tax proposal that was presented under former Mayor Michael Nutter. He promised that the proposal would be modified before adoption to ensure that all sugary drinks sold in the city would be taxed the same 3-cents-per-ounce rate. 

Overall, city officials said that they project Philadelphians currently consume about 61 million gallons of sugary drinks annually. Once the tax hits in 2017, officials believe the new tax could quickly cut sugary drink consumption in the city by 55 percent – to about 27.7 million gallons a year. 

Thomas Farley, the city's health commissioner, said any reduction in the consumption of sugary drinks was an added benefit of the proposed tax. 

"We certainly encourage people to cut their consumption of sugary drinks," said Farley. "That's definitely a good thing for health." 

Even with the reduced rate of consumption, city officials believe the tax would generate $47.9 million in new revenue in just its first six months. 

When the consumption rate drops – which city officials said is projected to fall at a rate of 1 percent annually after the initial 55 percent reduction – city officials said the tax could still generate about $96 million annually, for a total of $432 million over the next five years. 

Waxman said that the city came up with these projections by looking at data generated by the University of Connecticut on revenue potential for taxes on sugary drinks. 

She said that they looked at a "meta-analysis" of 13 different studies of taxes on sugary drinks - like one in Mexico that adds about 7 cents to the price of a liter of soda and another recently introduced in Berkeley, California, to determine how the tax could impact Philly.