What’s the Impact of Soft Drink Taxes?

Press enter to search
Close search
Open Menu

What’s the Impact of Soft Drink Taxes?

By Jim Dudlicek, EnsembleIQ - 10/31/2016

Proposals to tax sweetened beverages are emerging again in a few markets around the country, perhaps most significantly in ever-cash-strapped Cook County, Illinois.

If Cook County Board President Toni Preckwinkle has her way, consumers will pay an extra penny per ounce for soft drinks, whether they contain sugar or are artificially sweetened. That’ll add 72 cents to a six-pack of pop for grocery shoppers in Chicago and its suburbs. (Ed. note: Since this was first published, the Cook County Board approved the new tax.)

"I make no apologies for this. I think it's an effective way to raise revenues, and it has real good health consequences," Preckwinkle said, quoted in the Chicago Tribune. The county needs cash, its elected leaders say, to reduce its burgeoning budget deficit, prevent public safety layoffs in public safety and buttress public health and safety services.

In response, the American Beverage Association is leading a coalition of retailers, manufacturers and distributors to defeat the plan. The tax covers foodservice fountain drinks as well as retail products.

"This is not about public health. It's really about them filling their budget gap," Claudia Rodriguez, acting executive director of the Illinois Beverage Association and spokeswoman for the No Cook County Beverage Tax Coalition, told the Tribune. Trade groups like the Grocery Manufacturers Association and Illinois Association of Convenience Stores also oppose the tax. Meanwhile, the American Heart Association is leading the effort to support the tax.

Analysts indicate the success of so-called sin taxes are complex and unpredictable. "Because of the economic concept of crowding out, a soda tax may decrease soda consumption but in turn, increase other unhealthy behaviors, like purchasing a high-calorie latte," said Tim Murphy, a research manager with Deloitte Services. "The field of behavioral economics suggests that these programs are most effective when they incorporate intrinsic motivations (i.e. non-monetary) as well. Exercise trackers and weight-loss challenges often play upon these same behavioral motivations." 

Efforts Misplaced?

Ironically, while officials in Cook County and cities like Philadelphia and San Francisco point to evidence linking sugar-sweetened beverages to conditions like obesity and diabetes in ginning up support for their tax plans, the Cook effort would likely have little such impact.

According to the Chicago Tribune, some 920,000 Cook County residents who receive food stamp benefits – residents of some of Chicago's poorest neighborhoods with high rates of obesity and diabetes – wouldn't have their purchases hindered by the new tax, since under federal law, purchases made with benefits from the Supplemental Nutrition Assistance Program (SNAP) are exempt from state and local taxes.

Meanwhile, U.S. consumers are trending away from traditional carbonated soft drinks anyway, with sales down almost 8 percent since 2010, according to Euromonitor International.

Philadelphia's 1.5-cent-per-ounce tax, passed in June, is projected to generate about $92 million annually, most of that for a broad expansion of early childhood education programs. In Cook County, the tax is projected to generate more than $220 million a year, mainly to keep existing services from being cut.

Perhaps most telling is Berkeley, Calif., which passed its tax last year, aimed at reducing consumption and improving public health. To date, about $1.4 million has been redirected toward community health initiatives, according to Berkeley City Councilmember Laurie Capitelli, who told the Tribune, "When we get to zero, I'm going to be a happy camper."

Therein lies the canard: With cash so desperately needed, Cook County couldn’t afford to chase consumers away from pop, or to supermarkets in the collar counties for their grocery shopping.

Taxes intended to both discourage behavior and raise revenue are doomed to failure. At the very least, they’ll never meet the anticipated windfall.

As more of these taxes are passed, grocery retailers should prepare for sales of traditional sweetened soft drinks to continue to decline. And stores located near adjoining counties without such taxes should prepare to see entire baskets heading down the road.