Philadelphia Learns That Soda Tax May Be A Bad Long-Term School Funding Solution

Here’s the problem with “sin” taxes, like those on alcohol, tobacco, and fizzy beverages: You can use those taxes to raise money for a specific purpose, or to encourage citizens to consume less of the thing being taxed, but you can’t hope for both. That’s what Philadelphia has learned as its tax on sweetened beverages has failed to raise as much money as the city hoped.

The Philadelphia (Beverage) Experiment

Soda taxes are usually sold as a public health measure, which made the campaign for the tax in Philly unusual among similar campaigns. The mayor and other proponents sold the tax primarily as a way to raise money for pre-kindergarten programs, city parks, libraries, and tax credits for businesses that sell beverages without added sweeteners. Any health benefits to the population would be a pleasant side effect.

Only around 80% of the tax money was earmarked for that purpose in the end, but that’s not really the problem right now. The problem is that when something is taxed, people tend to either buy less of it or go buy it somewhere else that it isn’t taxed. Conveniently, that’s pretty much everywhere except the Philadelphia city limits.

CNBC reports that the city estimates that the tax, which took effect on Jan. 1, raised $39.3 million through the end of June. The city had originally projected that it would take in $46 million in taxes by the end of June.

Where did the money go?

People who live in Philadelphia are still drinking soda, but people who drink it at home and have access to cars are going to the suburbs and stocking up.

Coca-Cola and PepsiCo stopped selling their main brands of cola in two-liter bottles in the city, since a tax per ounce on a 2-liter bottle meant charging an extra dollar.

CNBC cites a study from consumer research company Catalina that shows that while soda sales within the city are down 55%, they’re up 38% in surrounding areas. Sales of bottled water in the city are up 9%.

A spokesman for the city responded to the survey by pointing out that most sodas aren’t sold in supermarkets and drugstores, and Catalina’s data didn’t include restaurants. The soda tax data also ends before the hottest days of summer.

He also suggested that eventually shoppers would get tired of traveling out to the suburbs to buy soda, which might increase sales within the city limits later in the year.

Still, it’s hard to ignore that the tax was meant to raise money, and it’s not raising as much money as it was supposed to.