This summer the city council in Philadelphia passed a measure approving a 1.5 cent per ounce tax increase on beverages with added sweeteners. Last week, voters passed ballot measures in three California communities adding a penny per ounce by overwhelming majorities. Boulder had the closest contest, but instead will raise the levy by two cents per ounce.
Then at end the week, the Cook County Board President ensured a penny-an-ounce soda tax will go into effect in Chicago. Governor Deval Patrick was an early proponent, but he was unable to pass a Massachusetts state tax law increasing the levy on soda or candy.
Why the need for this type of tax?
The argument goes that a tax reduces the amount of sugary drinks consumed. This then should improve health and lower the occurrence of diabetes and tooth decay. Limiting these empty calories is often cited for reducing obesity as well.
Beverage companies will collect the tax from distributors. It is unclear how much of the tax will be passed directly to consumers. But the tax could increase prices by as much as 20 percent.
The beverage industry has argued that the tax is regressive. A study by the University of California, Berkley did seem to support this. Berkeley was one of the first places to tax sugary drinks and the research into the impact found that consumption fell the most in low-income neighborhoods.
These taxes are estimated to raise substantial tax revenue. In Chicago, the estimated $224 million a year is being used to balance to budget. Philadelphia will use part of the tax proceeds to fund health education for children.
Regardless of the added taxes, purchases of soda and other drinks with added sweeteners are decreasing across the country. Last year was the 11th straight year with a decline in sales and bottled water is projected to overtake carbonated soft drinks in the next few years.
The policies that drive tax changes can be fascinating. But changes in the tax code also require attention so that you do not land on the wrong side of an IRS or Massachusetts Department of Revenue audit.