A study was released today digging into the effect of the polarizing “soda tax,” which taxes sweetened beverages at 1.5 cents per ounce. (“The Impact of Soda Taxes: Pass-through, Tax Avoidance, and Nutritional Effects”)
If the data are telling us that the tax fares poorly on its “bonus” objective of improving the health of citizens, we can still ask if the city has come out ahead in its new policy? No one is asking that question explicitly, but the answer seems to be an emphatic “yes” – if the city made $77 million in fiscal 2018 (per the Controller), at 1.5 cents per ounce, that’s 5.13 billion ounces of sweetened beverages. Assuming an average price of 4.3 cents per ounce (blended average of data from the paper) that’s $220 million of sales. Given the city’s 2% sales tax, that’s $4.4 million of revenue – a fraction of the soda tax revenue. The paper estimates sweetened beverage sales volume is down by 42%, and we can see that even if we there was a 50% drop, the loss of $4.4 million dollars in sales tax is dwarfed by the gain of $77 million.
To be fair, there are knock-on effects. The paper mentions that consumption has merely been displaced to outside city limits. If consumers are buying their groceries or other goods while outside the city (i.e. “I’ve made a trip to load up on soda, so I might as well buy all my groceries at this store as well”) the city is losing sales tax revenue on items other than soda. If the city has “net” gained $70 million on the sweetened beverage tax, then 70/.02 = $3.5 billion of substitution necessary to come out behind on soda tax revenue. That’s quite a hurdle! It seems safe to say that the city has indeed been successful in generating revenue from the soda tax, even attempting to control for foregone revenues and knock-on effects, but the ongoing conversation about who pays the tax and, accordingly, how it should be spent it one worth having.
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