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Philadelphia’s Soda Tax Goes to Court: What You Need to Know

The city is once again ground zero in the fight over taxing sugary drinks WSJ.com

Should sodas and sugary drinks be subjected to a special tax?

Philadelphia has become ground zero in the national debate over whether to tax sodas and other sugar-sweetened beverages. On Tuesday, Pennsylvania’s highest state court is set to hear a challenge by the American Beverage Association and others to the city’s soda tax, which went into effect in January 2017.

The outcome of the legal fight could have implications for other cities that have adopted or may consider similar measures, which like cigarette taxes, seek to curb unhealthy behavior through taxation.

Tax proponents say that sugary drinks contribute to obesity, diabetes and tooth decay and that the tax receipts can be directed to health programs or budget shortfalls. Beverage companies say that their products are being singled out unfairly and that the special tax is regressive and increases grocery bills.

Philadelphia imposes a 1.5-cent-an-ounce tax on sugar-sweetened drinks that distributors sell to restaurants and grocery stores. The tax applies to enhanced waters like VitaminWater and sports drinks like Gatorade, as well as juices like Ocean’s Spray Cranberry Juice Cocktail that aren’t 100% juice or have added sweeteners. It also applies to cashew and almond milk.

Baby formula and beverages for medical use are exempt. So are powdered mixes like Kool-Aid or Nesquik that are sold directly to a consumer or are added to a beverage directly by a consumer.

What is the purpose of Philadelphia’s tax?

Overconsumption of sugar is a leading contributor to obesity, diabetes, tooth decay and other health ailments, according to the World Health Organization, which recommends taxing the beverages as an “effective intervention.”

The Food and Drug Administration recommends that Americans get no more than 10% of their daily calories from added sugars. That would be about 50 grams, or about 12.5 teaspoons, for a 2,000-calorie diet.

A can of sugar-sweetened soda contains up to 40 grams (or roughly 10 teaspoons) of free sugars or added sugar.

Philadelphia says it will use most of the tax proceeds to help fund pre-K and community schools, parks, recreation centers and libraries.

Philadelphia was the first large U.S. city to adopt a soda tax.

1. Philadelphia was using the soda tax as a traditional Sin Tax. Explain Why a Sin tax is a Win-Win tax?

a. If demand is inelastic

b. If demand is elastic.

Answer 1

a. If the demand of the good is inelastic, then consumers will bear the burden of the tax and tax will not be much successful in reducing the consumption of soda drinks. When the demand is inelastic, tax imposition will not change quantity demanded by a larger amount.

b. If the demand of the good is elastic, then the tax will be successful in reducing the consumption of soda drinks and sweetened drinks as the burden of the tax will fall more on the suppliers. The tax will be helpful in reducing the consumption of these drinks if demand of the good is elastic.