Philadelphia's tax makes soda more expensive than beer, study shows



It may be cheaper for thirsty Philadelphians to reach for a beer than a soft drink, thanks to the city's so-called "soda tax," and that might not change anytime soon.

The latest study from the Tax Foundation, an independent tax policy research group, found the city's excise tax on sugary beverages has in some cases made drinks like soda more expensive than beer and that it may not be raking in the cash city officials envisioned. Soda revenues have lagged, and the shift has pushed some residents to leave the city to buy groceries, according to the study's authors.

The tax went into effect at the start of the year and slaps a 1.5 cents-per-ounce tax on sugary and diet beverages. That's 24 times Pennsylvania's excise tax rate on beer and covers a range of beverages, from soda and energy drinks to some teas and fruit juices.

The tax is levied on distributors, but some grocers have passed it on to drinks. This means a 12-pack of store-brand root beer costing $2.99, rings up as $5.15 because of the added $2.16 in tax, according to a previous study from the group.

The organization also found that a 12-pack of Propel energy drink in one Philadelphia store costs $9.03 with the added $3.04 tax, while a 12-pack of Icehouse beer goes for just $7.99 after the beer tax is applied. And that estimate is conservative, as the Propel was discounted when researchers did a cost comparison.

Other cities have fought for a similar tax, but they typically frame the provision within health policy, often as part of the fight against obesity. Philadelphia bucked the trend, passing the tax as a revenue-raising measure.

City officials intended the money to go toward a number of programs, including pre-kindergarten programs. But just less than half of the nearly $39.5 million collected since the tax went into effect on Jan. 1 has gone to education funding, according to the study.

Overall, the city may have overestimated the tax revenues, as soda tax collections have reportedly settled below the original projections of $92 million per year, or $7.7 million per month. The study's authors suggest the city missed its mark because of higher prices, fewer purchases and tax avoidance.

Researchers found Philadelphia's hard-won tax has met with legal battles and has made for uneasy consumers and retailers, issues that may not be easily remedied.

"Despite constituent support for the programs funded by the tax, the actual revenue for programs remains unstable due to poor collection performance, with potential that those revenues will continue to fall," according to the study. "The legal battles and consumer angst the tax has attracted make the tax unattractive as well. "

Copyright 2017 U.S. News & World Report

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