Mayor Nutter's Philly Beverage Tax Dead Before Arrival

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Philadelphia Mayor Michael Nutter’s effort to impose a beverage tax on the citizens of the city has failed. It officially died (for this year, anyway) on May 20. However, its fate was really sealed a week earlier when the bill never got out of committee, which essentially ended Nutter’s personal quest to fight obesity and close Philadelphia’s $130 million budget shortfall.

When it became obvious the majority of the city’s 17 council members were not going side with him on the beverage tax issue after weeks of lobbying, Nutter sent a letter to council members stating that without the soda tax or a further property tax increase, he would be forced to slash an additional $20 million from the budget through the elimination of more than 300 jobs. His letter noted those positions could include posts in the police and fire departments. 

“Today the big soda lobby won and average Philadelphians lost,” Nutter said. “A tax on sugar-sweetened beverages would have been a way to both provide the city with much-needed revenue and improve the health of residents.”

As the mayor assessed his declining odds of getting his legislation passed, he even proposed a softening of the bill’s first version which called for a two cent per fluid ounce tax on sugared beverages, an initiative projected to raise $77 million. As the council vote drew close, Nutter revised his original levy to $0.75 cents tax per fluid ounce, which would have raised a projected $30 million annually.

In the end, to close the budget shortfall in 2010-11, the state approved raising property taxes 9.9 percent, doubling trash-collection fees for commercial properties and imposing a new tax on tobacco. Philadelphia’s annual budget will become final on June 30.

While the non-passage of the bill is certainly a victory for beverage manufacturers, distributors and food retailers, the industry, through its “Philly Jobs Not Taxes” coalition, the group recognizes that Nutter’s resolve hasn’t diminished and that similar legislation could be re-introduced next year as the mayor continues to search for answers about childhood obesity and the city’s dwindling population and tax base.

When Mayor Nutter originally proposed the beverage tax in early March, one of his key arguments was that the tax would force consumers to purchase other untaxed (and presumably healthier) drinks that will offset any lost sales. Additionally, other points made by Nutter and advocates of the bill were that Philadelphians won’t shop outside the city and that most beverages are bought in convenience settings for “on the go” consumption. Proponents of the beverage tax also note that retailers may spread the tax across all beverages, so the “sticker shock” on sugared beverages won’t be as startling.

The coalition took issues with all of those points, noting that those consumers who purchase sugared drinks don’t view diet products as an alternative and vice-versa. Increasing the price of regular soda doesn’t translate into more diet soda sales – the result would produce declining sales of regular soda products because of the higher prices.

They also challenged the mayor’s reasoning that if stores simply spread the tax across the entire beverage spectrum, then he wouldn’t achieve the health benefits he is purporting and prices will rise across the entire category.

As for the assertion that consumers will not leave the city to purchase beverages, that logic is flawed as well, members of the coalition noted. Affluent residents of the city who own cars will definitely shop outside the city to purchase groceries (including sugared beverages). As for those citizens who rely on mass transit or walk to their grocery or c-stores, they will end up being the most heavily taxed.  The industry group also says that while Mayor Nutter may believe this is a nutritional issue, the beverage tax will actually become a socio-economic issue that punishes those who can least afford it, adding that research substantiates that beverage consumption is not a convenience or “on the go” issue. About two-thirds of soda sold in bottles and cans is consumed at home.