Philadelphia City Council members narrowed their beverage tax proposals down to a final compromise measure last Wednesday. The latest proposal, awaiting final vote this Thursday, would levy a 1.5-cent per ounce taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on an expanded selection of sweetened beverages that includes diet soda. Like each variation on Mayor Jim Kenney’s proposals thus far, this tax is built upon an increasingly shaky economic foundation.
Though originally pushed as a funding source for pre-K education, final negotiations redirected 20 percent of the revenue to other city programs and employee benefits. Just 49 percent of the money raised would fund pre-K, with the remaining money funneled to other city services:
Image: Philly.com
This means that sweetened beverage drinkers—a narrow base—would be shouldered with the burden to provide funding for pre-K, city employee benefits, and a host of other city-wide services that ostensibly deliver benefits to a broad base of citizens. Further, these types of excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es are widely regarded as regressive, so the tax would fall harder on lower-income Philadelphians than higher-income Philadelphians.
Our previous analysis highlights the instability that arises when funding relies on a narrow tax on just one good. Even in the absence of a direct taxA direct tax is levied on individuals and organizations and cannot be shifted to another payer. Often with a direct tax, such as the personal income tax, tax rates increase as the taxpayer’s ability to pay increases, resulting in what’s called a progressive tax. , soda consumption is dropping nationwide. If this tax causes soda consumption to further decrease, or causes consumers to make purchases outside of the city, revenues would fall and programs would be underfunded.
Philadelphia should not use an instable tax structure to cast the burden of funding core services onto a narrow group of taxpayers. If Mayor Kenney’s budget proposals are considered essential to Philadelphians, then they should be funded by a broad, neutral tax.
Be sure to read our comprehensive report on soda taxes here.
Share