Scott Drenkard reports that the city’s revenues from the soda tax were only $39.5 million—15 percent off of the target of $46 million—for the first six months of 2017. Why the discrepancy? People change their behavior in response to a tax. Drenkard:
“Soda sales in Philadelphia have also declined since the tax went into effect at the beginning of 2017, threatening the long-run sustainability of the tax. According to some local distributors and retailers, sales have declined by nearly 50 percent. This is likely primarily due to higher prices, which discourage purchasing beverages in the city. Some Philadelphia taxpayers took to Twitter as the tax took effect, noting their plans to shop for groceries outside the city. This kind of tax avoidance is only feasible for consumers with means of transportation, making the tax even more regressive.
“Purchases of beer are also now less expensive than nonalcoholic beverages subject to the tax in the city. Empirical evidence from a 2012 journal article suggests that soda taxes can push consumers to alcohol, meaning it is likely the case that consumers are switching to alcoholic beverages as a result of the tax. The paper, aptly titled From Coke to Coors, further shows that switching from soda to beer increases total caloric intake, even as soda taxes are generally aimed at caloric reduction. […]
“Concerning public program funding stability, the Philadelphia Beverage Tax website still maintains, ‘[O]ur revenue projections do account for a significant drop in consumption of these products within Philadelphia. But even with the drop in consumption, our revenue projections still cover the programs.’ Nevertheless, the decline in consumption is worse than predicted. Ultimately, the lag in soda tax revenues jeopardizes funding for city programs, especially as soda consumption is falling nationwide as well.” [Internal citations omitted.] [Tax Foundation]
