Facts, Not Hysteria, About the Soda Tax

Marc Stier, Diana Polson |

Co-authored by Diana Polson.

The reaction of the beverage industry to the Philadelphia soda tax continues to be self-centered, hysterical, and dubious.

Before looking at their claims, let’s keep in mind something very important: every tax has some negative consequences for some businesses. And, yes, it is a shame if some business absorbs some costs and a few people lose jobs as a result. But public policy has to be driven by the consequences for all of us. So, the question is not whether an individual business is hurt by the Philadelphia soda tax, but whether the city and its citizens benefit on the whole. We think the answer is clearly yes, not just because of the investment in Pre-K education and community recreation centers made possible by this tax, but because of the health and economic benefits of reduced soda consumption.

There is no independent verification of large declines in soda sales or grocery sales in Philadelphia or of declines in employment at grocery stores or soda distributors. They are a lot of wild claims and threats made by the beverage industry, which conducted an expensive and dishonest campaign against the soda tax and has launched a dubious lawsuit against it. They are afraid of the soda tax spreading to other cities and want to kill it in Philadelphia.

Some of the claims made by one grocery store owner, of a decline in total sales of 15% to 30%, are inconceivable. Our analysis of a survey done by the grocery industry’s trade magazine Progressive Grocer, shows that only 6% of food sales and 2% of total sales in grocery stores are drinks — and that includes drinks not taxed by the soda tax. Even if soda sales dropped by 50% — an unverified claim — how could grocery stores be suffering a 15% drop in total sales? Indeed, if sales had dropped by so much, we would see a larger reaction from the entire grocery industry. They would have surrounded City Hall with tractor-trailers.

Some of the decline in sales will probably be reversed as people get over the shock of higher prices. Perhaps some people crossed the city line to buy soda once or twice. But most people shop for groceries close to home and will continue to do so after their initial reaction subsides — and five new grocery stores have opened in the city since the tax was instituted. Remember that the tax is on soda, not thirst. People will purchase alternatives to sugar-sweetened drinks. Grocery stores could help this happen faster by creative marketing instead of complaining.

When we look at soda distributors, we see no reason to think that the soda tax has or will to large layoffs — and as unemployment compensation claims are filed, we will be looking for an evidence of such layoffs. A recent article quotes a Coke representative saying that sale of soda in smaller sizes is actually increasing in the city, a trend that began before the tax was enacted and continues after it. And the same article says soda sales seem to be increasing in the suburbs, which will partly make up for declines in the city. Even if distributors are laying some people off, how do we know it’s due to the soda tax? There is always change in the beverage industry. Pepsi has been out front saying the tax will lead to lay-offs. But Pepsi closed a plant in Reading late last year. Is it losing regional market share? Finding a more efficient way to deliver soda? We don’t know whether lay-off threats are real and whether there is any reason to blame the soda tax.

It is possible that some jobs will be lost in soda distribution and marketing. But the jobs gained from new investment in pre-K education and rebuilding Philly’s playgrounds and recreation centers are likely to make up for those lost. Meanwhile, the children who get good Pre-K education due to the revenues raised by the tax will see long-term benefits in educational attainment and earnings.

At any rate, some decline in soda sales after enactment of the tax was expected and should be welcomed. It’s a feature of the law, not a bug. And it hasn’t interfered with the revenue from the soda tax, which continue to come in above projections. We wrote a report that showed that in every class, racial and ethnic group, people drink too much soda (and too much other sugary drinks) with terrible long-term health consequences. Because of the soda tax, rates of diabetes and heart disease in Philly will drop, as will individual and public expenditures for health care.

It would be great if every public policy were a win-win for everyone. But when it comes to taxes, someone loses. In this case, it’s the beverage industry whose high profit margins and deep pockets not only enables it to deal with the consequences of a small decline in sales, but has given it the resources to fight a long public relations, lobbying, and legal campaign to keep those high margins in Philly and in the rest of the country. We shouldn’t let its high-priced campaign dissuade us from supporting a tax plan that has enormous benefits for the city and its citizens.