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Evaluating Soda Tax Proposals in West Virginia

4 min readBy: Jared Walczak

Those who enjoy the occasional—or, if you’re like me, more than occasional—soda have probably noticed the outline of West Virginia etched into the top of many cans. Although these days the outline is often replaced by an inkjet-printed “WV1” on the base of the can, these markings—known as 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. stamps or tax crowns—reference an existing tax West Virginia imposes on soda, at the rate of one cent per 16.9 ounces or fraction thereof. The revenue, about $15 million a year, is earmarked for the medical school at West Virginia University, and has been since 1951.

And that’s not the only tax West Virginia imposes on soda. The Mountain State also taxes soft drink syrup at 80 cents per gallon and dry mixtures at 1 cent per ounce. A typical soda fountain mixes water and syrup at a 5 to 1 ratio, so the syrup tax adds a little more than a tenth of a cent per ounce to the cost of fountain drinks.

Under two pending revenue proposals, that would be just the beginning.

Coping with a projected $450 million budget shortfall, newly elected Governor Jim Justice (D) has introduced three budget proposals: a cuts-only budget he clearly disfavors, plus two revenue-raising proposals, the more recent of which includes an increase in the cigarette tax (last hiked a year ago) and a new one cent per ounce soda taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. , designed to raise $85 million a year. Meanwhile, a Senate plan to overhaul the tax code with a broad-based consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. also proposes increasing the current tax on 16.9 ounce equivalents from one to five cents, and the syrup tax from 80 cents to $4 per gallon, which would purportedly raise about $75 million.

West Virginia was an early adopter of soft drink taxes. Only three states—South Carolina (1925), Tennessee (1937), and Louisiana (1938)—did so earlier, and two of these states have since repealed their taxes. Now, West Virginia could lead in this dubious category again should it become the first state to adopt a per-ounce 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. on sugar-sweetened beverages.

A penny per ounce adds up. That’s 67.6 cents per two-liter bottle or $2.88 on a 24-pack of soda cans. After the city of Philadelphia adopted a 1.5 cent per ounce soda tax a few months ago, soda sales are reportedly off by as much as 50 percent, with predictable consequences. PepsiCo is laying off 80 to 100 area employees, a ShopRite franchisee with six Philadelphia locations anticipates laying off as many as 300 workers, and free refills are disappearing at some restaurants as their costs mount.

One reason for Philadelphia’s crisis is the ease of cross-border shopping. While not every consumer will be price-sensitive enough to purchase soda outside the city, and convenience does count for something (witness the fact that 20-ounce bottles often cost more than their 2-liter counterparts, and that bottled soda sells at higher prices in convenience stores than in larger grocery stores), it’s relatively easy for motivated purchasers to stock up on cases of soda elsewhere. That’s certainly the case when a tax is only imposed in one city, and it’s an important concern in West Virginia as well, where 28 of the state’s 55 counties border another state.

Soda taxes are regressive; there’s no getting around that. As a general rule, soda consumption is higher among young people, low-income earners, racial and ethnic minorities, and those without a college education. In West Virginia specifically, soft drink consumption is higher than average and would have a significant impact on many taxpayers.

For the Senate, such a tax increase appears to be thought of exclusively as a revenue-raiser; this may also be the primary motivation of the governor’s proposal, since it is part of a package designed to close the current budget shortfall. Governor Justice suggested, however, that positive health outcomes might also be a consideration, observing, “Gosh knows, it would have been great if I’d drank a few cans less of sweet soda pop.” Whether that’s true or not, Americans like their sweet soda pop, and West Virginians are no exception.

About 47 percent of West Virginians with a high school education or less consume soda at least once per day, compared to 26 percent of West Virginians with a college degree. Nearly 64 percent of 18-24-year-olds drink soda at least once a day, and the same can be said about 57 percent of 25-34-year-olds and 48 percent of 35-54-year-olds. Eighty percent of all West Virginians consume soda, and 45 percent consume soft drinks more than once a day, compared to 31 percent nationwide.

Soda consumption has been declining for years, and recently hit a 30-year low. Part of this decline reflects a shift toward other sugar-sweetened beverages which would also be captured by a soda tax, but it is also the case that Americans are consuming fewer soft drinks overall. This suggests that soda tax revenue would erode over time. That should be no surprise to West Virginia policymakers, since the existing tax has lost about half of its peak inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. -adjusted value over time.

My colleagues have repeatedly pointed out that taxes on sugar-sweetened beverages are regressive, encourage cross-border shopping, and lead to unintended economic consequences. Whether understood as a “sin tax” on one category (of many possible ones) of caloric intake or simply as a revenue-raiser, taxes on soft drinks miss the mark.