“When you want somebody to buy something, you lower the price. And if a lot of people want it, you raise the price. Then you get more money.” That’s the theory of supply and demand, explained by my ten-year-old son Daniel over dinner recently. He took a gulp of juice and was about to get more, but I reminded him that he’d had plenty of sugar and needed water. He frowned, but pointed out, “At least I don’t drink soda. Soda’s really bad for you.”
I agreed, and told Daniel about Mayor Ed Murray of Seattle. He’s trying to reduce the demand for or sugary drinks by raising the price. He’d tax distributors of sodas, energy and sports drinks, fruit drinks, sweetened teas, and bottled coffees. For a while, he wanted to tax distributors of diet soda, too.
“Diet soda doesn’t have sugar. Are bubbles bad for you?” Daniel asked. Nope. The mayor had good intentions for taxing a wider range of beverages, but the road to bad tax policy often is paved with good intentions.
Mayor Murray initially proposed a 2-cent-per-ounce tax on sugary drinks to fund public services for young children, education, and improved access to healthy food in low-income communities. His plan followed guidelines set by Seattle’s ten-year-old Race and Social Justice Initiative, which aimed to eliminate racial disparities and achieve racial equity in the city this year.
Murray’s tax was supposed to generate $16 million a year, curb soda consumption, and improve health. Drinking sugary beverages contributes to diabetes and obesity, and these chronic health conditions disproportionately affect Seattle’s low-income communities and communities of color. But some citizens' groups argued that the tax would pose a disproportionate financial burden on low-income African-Americans and Mexican-Americans, since they are more likely to consume more sugary drinks than whites.
In response, the mayor amended his proposal to lower the tax rate but expand the tax’s reach—and now raise $23 million per year. He proposed a 1.75-cents-per-ounce tax on sugary beverages and artificially sweetened and calorie-free beverages. According to the Racial Equity Toolkit documentation prepared by the mayor’s office, the changes were "a result of requests from community advocates and supported by polls that have shown that diet drinks are preferred by wealthier individuals.”
This is curious logic, for at least two reasons. First, it ignores any health effects which, presumably, would disproportionately benefit the same low-income people who’d buy fewer sugary drinks because of the higher tax.
Second, what if the Mayor applied his logic to other unhealthy products? According to Washington State’s Department of Health, Native American and Alaskan Native populations are more than twice as likely to smoke cigarettes as African American or white populations, so they bear a disproportionate financial burden of the state’s $3.03-per-pack tax. Should the cigarette tax be lowered a bit, and should some other comparable product—say vaping products?—be taxed even more in order to cover the revenue loss?
Perhaps the mayor’s math worked: Lower the sugar tax for poor people but make up the lost revenue by taxing something high income people drink. But my 10-year-old immediately grasped the problem.
“Doesn’t he want people to buy less sugary soda? Or does he just want people to buy less of everything?” Great questions, Daniel. And the answer to both: Yes.
The second version of the mayor's initiative illustrated a common problem with soda taxes. As my TPC colleagues Donald Marron, Norton Francis, and Kim Rueben explain, if the Mayor’s main goal is to lower sugar consumption, taxing sugar content works best. But if he wants to raise a specific amount of money to help fund programs, a broader tax on a larger set of beverages may make more sense.
Philadelphia chose “broader” with the drink tax it passed last year. Its 1.5 cent-per-ounce beverage tax applies to non-alcoholic beverages sweetened with any caloric sugar-based sweetener like high-fructose corn syrup and any form of artificial sugar substitute like stevia. It was supposed to raise $46 million this fiscal year but with two months to go, it’s $20 million shy. This could mean that people are drinking fewer taxed beverages and more untaxed drinks, like water. Or maybe they're just buying their soft drinks outside the city.
Well, Mayor Murray, in response to opposition from the City Council, went back to focusing on sugar. He amended his proposal yet again to exclude diet drinks from the beverage tax, which would lower revenue from the levy by $8 million annually. The city council passed the 1.75 cents-per-ounce sugary drink tax on June 5, and it will go into effect in January.
Will it meet its revenue goal, or fall short, much like Philadelphia’s beverage tax? How effective will it be in promoting racial equity in Seattle? Even with the change, Mayor Murray’s tax may simply be too blunt and weak for the job at hand.
Its impact on the health of his community might be as fleeting as… bubbles.
The Tax Hound, publishing the first Wednesday of every month, helps make sense of tax policy for those outside the tax world and connects tax issues to everyday concerns.
