Philadelphia Embraces Discriminatory Taxation

Philadelphia, the birthplace of American liberty, has fallen victim to the Nanny State. Unfortunately, the Philadelphia City Council has decided to pick winners and losers by imposing a 1.5 cent per-ounce beverage tax. Effective next year, this onerous tax  will apply to a wide variety of drinks that the city government  deems unfit for Philadelphians, such as energy drinks, sports drinks, flavored waters, diet soda, regular soda and other beverages with added sweeteners. Not only does this discriminatory tax violate the principles of sound tax policy, but it also imposes new economic burdens on Philadelphia’s businesses and families.

This new tax will cause fiscal headaches for Philadelphia’s small businesses. American soda consumption has continued to fall in recent years, even without discriminatory taxes. This new tax in Philadelphia is very concerning for mom and pop stores, many of which depend on beverage sales for a significant share of their earnings. As Paul Psihogios, owner of a local family-owned restaurant explained, “People are not going to pay $1.50 for a can of soda. It’s going to hurt us.” Sales volume could decrease an estimated 50 percent or more, as Philadelphians choose to buy their beverages elsewhere.

Additionally, consumers can probably say goodbye to those free refills at soda machines. Restaurant owners and distributors are responsible for calculating the cost of the tax, since not every soda fountain uses the same ratio of carbonated water and syrup. The city requires distributors to list of the cost of the tax when restaurants buy the syrup. As a result, consumers will absorb the cost in higher prices. Melissa Bova from the Pennsylvania Restaurant and Lodging Association stated, “At the end of the day, they’re probably going to have to assess a higher markup on the product.”

Furthermore, hardworking families in Philadelphia cannot afford increased grocery bills. As noted the ALEC Rich States, Poor States report, businesses do not pay taxes – people do. While businesses collect and remit taxes, the burden of the tax is always borne by an individual at some level. In fact, if the tax is passed along fully to consumers, prices could rise by an estimated 30 percent. The discriminatory tax would add more than $2 to the cost of a 12-pack of canned soda and about $1 to the price of a two-liter soda.

Finally, tax proponents continue to change their story on what programs the revenue will actually fund. Originally, Mayor Jim Kenney promised that the revenue would go towards funding pre-K programs. Now, about only half of the revenue will go towards the original, promised destination. The other half will go towards a laundry list of line items with little relationship to pre-K programs, such as employee benefits and juvenile resentencing costs. City Council member David Oh exclaimed, “This is not the narrative that had been told to the public. The narrative public had been told that we don’t have the funds – we need the funds, and the reason we need the funds is to implement a universal pre-K program.” Additionally, by the third year of the tax, an estimated 30 percent of revenue goes directly to the city’s fund balance. Instead of going to pre-K as promised, the money is up for grabs.

Clearly, Philadelphia families and businesses deserve better. Since the City of Brotherly Love will have the highest soda tax in the nation, residents will be able to easily save on their grocery bill by shopping elsewhere. Furthermore, according to 2014 data, the city already imposes the highest tax burden in the nation on families making $25,000 a year. Instead of adding to the financial stress of hard working Philadelphians, council leaders should look for ways to provide residents with much-needed tax relief. As the ALEC Resolution in Opposition to Discriminatory Food and Beverage Taxes states, “it is vital public policy makers help hardworking Americans retain their tenuous hold on financial security by shielding them from even more burdensome discriminatory taxes.”