Closing the lid on soda tax

Closing the lid on soda tax
Initiative 1634 would prohibit any new local soda taxes after the city of Seattle imposed its own in January. The coalition includes worker unions and major distributors such as The Coca-Cola Company and PepsiCo, Inc. Photo: Marlith

As Seattle’s business community pushes back against a proposed head tax, a coalition of employers and workers unions wants to quarantine the city’s soda tax so it doesn’t spread to other parts of Washington. Initiative 1634 (I-1634), filed with the Secretary of State’s Office in March, would prohibit local governments from passing not only a beverage tax, but also any new or increased taxes on food, while allowing Seattle’s soda tax to remain intact.

The coalition’s membership perhaps speaks to growing anxiety over the tax and its potential spread to other Washington cities. Proponents include the Joint Council of Teamsters No. 28, the Washington Farm Bureau and the Washington Food Industry Association. Also funding the effort are The Coca-Cola Company; PepsiCo, Inc., Dr Pepper Snapple Group, Inc. and Red Bull North America.

That apprehension is expressed on Yes! To Affordable Groceries’ site: “People are concerned that these taxes will spread across the state. There are better ways to address budget challenges than raising prices on our grocery list. Seattle imposed a tax on hundreds of every day beverages and this may be only the beginning of more attempts to raise taxes on meat, produce, dairy, and many essential foods.”

Foreshadowing statewide opposition to local soda taxes was a May 2017 letter signed by over 200 Seattle business owners to the Seattle City Council while it was still considering the ordinance, calling the tax “regressive.”

“With rapidly increasing property taxes to pay for city services and an increase to the minimum wage, our neighborhood stores and restaurants are under extreme financial pressures due to your actions,” the letter states. “Perhaps some of Seattle’s larger and more rapidly growing businesses can absorb these costs, but we cannot. Seattle’s small businesses are struggling to compete and to thrive.”

The letter continues: “Proponents might claim that reducing sales is the goal, but those judgments are blind to the needs of our businesses. Perhaps Seattle’s more affluent customers can pay the higher costs, but ours cannot. More so, they will simply shop in Bellevue, Renton or Shoreline, and flight from our stores will further reduce our chances to survive.”

Their warning has solid footing in a 2017 Oxford University study of the city of Philadelphia’s 1.5 cent soda tax, which found the city tax cost 1,192 jobs and led to a roughly 29 percent decline in bottlers’ sales. Meanwhile, in the region immediately outside the city, bottlers had a 26-percent increase in sales. Eventually, Pepsi stopped selling 12-packs and 2-liter bottles in the city.

What’s more, the tax generated $7 million less than anticipated for the 2017 fiscal year. Seattle expects to collect $15 million in soda tax revenue this year.

Separate from a soda tax as a general concept is the matter of how it would be implemented. Seattle’s ordinance imposes a $0.21 cent tax on every can of soda sold, and $5.04 for every case of 24 cans. To give some perspective, that’s eight times greater than the state’s tax on beer, according to the Tax Foundation. The tax has led to such high price increases that companies operating in Seattle such as Costco have gone out of their way to inform customers.

In 2016 voters in four cities, three of them in California, approved soda taxes. If the past is any indication, Seattle residents may warm to the idea. In 2003, they overwhelmingly rejected a proposed 10-cent-per-cup tax on espresso.

Incidentally, the city ordinance exempts coffee and Seattle-favorite drinks with high sugar content such as Starbucks lattes – though the tax does apply to flavored Frappuccinos.

Beyond that, there’s another problem with the tax, says Washington Policy Center Research Director Paul Guppy. It goes against a general principle the state has held since the 1980s “to not tax what people need to live.” That includes food, which is exempt from the state sales tax and which the initiative protects from any local proposals.

Also, Seattle’s ordinance justifies the tax in order to curb soda consumption over health concerns, a rationale Guppy argues sets a dangerous precedent to rationalize even more taxes.

“Once you open that door, the next debate is ‘you also shouldn’t be eating cookies, trans fat food.’ When it becomes public policy, that’s a controversial political debate.”

He adds that “sin taxes” like the soda tax have “internal contradictions, and it gets to the heart of what taxes are about. Taxes are to raise money to fund the government; they are not to micromanage people’s behavior.”

The tax may not even achieve its ostensible social goal. Mexico has one of the highest soda taxes in the world, but it has yet to decrease the country’s soda consumption or obesity.

To qualify for the ballot, I-1364 needs at least 259,622 signatures of registered voters by July 6, though 325,000 signatures are recommended.

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