In the United States, it is well-known that sodas are bad for your health. They can cause kidney issues, tooth enamel decay, and even heart disease. Despite these negative consequences, soda has been the single greatest source of processed sugar in the American diet for decades.
To dissuade people from drinking soda, some economists have suggested government intervention in the form of taxes. As of Thursday, such a "sin tax" is officially being implemented in Philadelphia, one of the oldest and largest cities in the United States.
Philadelphia's mayor, Jim Keeney, initially proposed a tax of 3 cents per ounce of sugary beverages to pay for public prekindergarten and updating public spaces like parks and recreational centers. Keeney sold the plan as a way to reduce the city's institutional poverty rather than as a way to make Americans healthier. His approach was novel and resonated with more lawmakers.
The Philadelphia City Council held a debate in which the proposed tax was halved to 1.5 cents per ounce. The tax was passed with 13-4 vote in the City Council.
The 1.5 cent tax is expected to raise $91 million annually. The city council stated that the surplus yield from the taxes will also be used to balance the city's budget. This development angered some Philadelphians who initially supported a tax that would only be used to raise money for "morally right" causes.
Philadelphia's struggle to pass the soda tax is not the first in the United States. Numerous other cities have attempted the same feat in the past and before Philadelphia, only one has succeeded: Berkeley, California.
Berkley has a population of only 116,000 people compared to Philly's 1.55 million. Its median income is almost twice Philly's. Its racial makeup is predominantly white, whereas Philly's is far more diverse.
The differences between Berkeley and Philadelphia can help highlight some of the arguments of those against the tax. Some view the soda tax as a regressive tax since soda is consumed predominantly by a poorer subset of the population. Philadelphia has a higher percentage of people, especially children, in deep-poverty than Berkeley does. This suggests that the tax could have a negative effect in Philadelphia that was less present in Berkeley.
On the other hand, some have said that the tax could on net actually benefit the poor. As the price of soda increases, the poor will not buy it at the same rate because it is a luxury good. As consumption from the lower classes falls, the soda taxes implications on the poor will remain unclear. Nevertheless, the funds that the soda is tax is meant for will help those in poverty by funding schooling.
Special interests like the beverage industry and grocery markets loudly opposed the tax. Pepsi (NYSE: PEP) in particular offered to fund universal prekindergarten in Philadelphia on its own if the soda tax were not put up to a vote. It wanted to prevent the soda tax from spreading across the United States. But, the city council rejected Pepsi's proposal.
The American Beverage Association, an organization that represents the non-alcoholic beverage industry in the United States, spent a total of $4.2 million running campaigns against the tax. The group says that it will redouble its efforts now that the tax has passed. As investors worry about declining profits from soda industries, companies like Coca-Cola (NYSE: KO) and Pepsi have attempted to remain relevant.
The giant corporations are already seeking to diversify their portfolio so that they do not depend as heavily on sugary drinks. They have invested in healthy drinks and both also own multiple bottle water brands. Coca-cola claims to have been investing in other portable drinks since 1975, when it bought Georgia Coffee. Like other soda companies, It may well be prepared to absorb losses from its staple product.
Sources:
Sanger-Katz, Margot. "Novel Strategy Puts Big Soda Tax Within Philadelphia's Reach." The New York Times. Web.
Press, Errin Haines Whack Associated. "Philadelphia Soda Tax Sold Public Interest Over Health." ABC News. ABC News Network, Web.
"Philly 'Soda Tax' Gets Go Ahead." NBC 10 Philadelphia. Web.
"How Soda Taxes Will Affect PepsiCo and Coca-Cola (KO, PEP) | Investopedia." Investopedia, 14 Dec. 2015. Web.
"As More Cities Eye Soda Tax, Industry Vows To Fight New Tax in Philadelphia." NPR. NPR. Web.