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Soda Taxes and Trash Fees In Philadelphia

3 min readBy: Justin Higginbottom

Philadelphia Mayor Nutter wants to 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. sugary drinks and charge a “trash fee”:

Mayor Nutter, balking at cutting “core services” and running out of ways to raise money, is expected to balance next year’s budget with a steep tax on sugary drinks and a $300 annual residential trash fee, sources familiar with the plan said yesterday.

City Councilman W. Wilson Goode Jr. said he anticipated a 2-cent-per-ounce tax on sweet drinks as part of Nutter’s 2010-2011 budget, to be presented tomorrow. That’s $2.88 on a 12-pack of soda cans.

In addition, the nearly $4 billion budget is expected to include a fee of about $300 annually for trash service. Lower-income residents could qualify for an annual fee of about $200.

…Neither the trash tax nor soda fee looks to be temporary. Both new revenue sources appear in all five years of the administration’s tentative five-year spending plan, sources said.

As mentioned here before, a sugared beverage tax—especially when proposed in a time of budget holes—is just a discriminatory revenue grab. In this case it targets a few industries to preserve Philadelphia’s “core services.” The Mayor’s concern over city obesity is a convenient afterthought. $20 million of the estimated annual collection of $77 million from the tax will go to obesity prevention programsstarting in FY 2012. Hopefully by that time Philadelphia’s budget is in better shape. Of course with a pigouvian taxA Pigouvian tax, named after 1920 British economist Arthur C. Pigou, is a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction. Examples include tobacco taxes, sugar taxes, and carbon taxes. , it is usually not relevant where the money goes. The tax is meant to curb consumption. But it is clear the city is relying on this tax now to help fill their $150 million shortfall.

And until the Mayor can show the obesity “problem” in his city has large social costs he should not make it his problem. Private costs should be looked at with indifference by public officials. And when citing costs associated with obesity in his city, he provides no evidence of costs imposed on the city by the obese.

Here is a good summary of the literature (from NBER) on obesity and social costs:

My research suggests that the vast preponderance of these costs is private and paid for by obese individuals themselves. Moreover, some of the costs that are traditionally identified as public costs may actually be benefits. Rising obesity rates, for example, may bring forth greater innovative activity and ultimately treatments that benefit thin people as well. In this setting, policies such as taxes on junk food may lower social welfare rather than raising it while placing substantial burdens on obese individuals who already pay a substantial cost for their girth.

For the trash fee, its revenue will go into Philadelphia’s general fund, from where about $140 million of the $147 million trash and recycling tab comes. The estimated revenue of the “Keep Philly Clean Fee” is only $108 million annually, so the city is still using general funds to pay for trash clean-up. And that cost is not likely to drop soon:

Philadelphia could not easily privatize trash collection because the City Charter requires Council approval for that, and Council would not likely take those jobs away from city employees.

The Nutter administration also is in the middle of contract negotiations with sanitation workers and other union employees.

“Right now, we’re not far enough along in our negotiations with them or far enough along in evaluating our options to warrant making such a request of City Council,” Nutter spokesman Douglas Oliver said.

The Mayor says:

“We cannot completely reply upon cutting our way out of this deficit because the enormous reductions required would devastate our basic services from police to fire to parks to libraries to recreation and every other service we have,” Nutter told city council during Thursday morning’s address.

Mayor Nutter has structured the debate over his budget as one between police or more expensive soda; fire-fighters or a trash fee; light bulbs in street lights or fat citizens. It’s a familiar tactic and should be met with skepticism.