Soda tax
The American Beverage Association vows to challenge in court.

PHILADELPHIA — The second and by far largest city to date in the United States passed a per ounce beverage tax on June 16 that likely will be challenged in court, but at the same time broke new ground in the effort to regulate “sugary” beverages.

Philadelphia’s City Council approved by a 13-4 vote a 1.5c-per-oz tax on both sweetened and diet sodas and several other beverages — basically any non-alcoholic drink that is less than 50% milk, fruit juice, vegetable juice, infant formulas, “medical food” or that is sweetened at the control of the consumer. The tax, to be levied Jan. 1, 2017, is expected to raise about $90 million annually. According to the office of Philadelphia mayor Jim Kenney, about 50% of the funds raised will go to pre-kindergarten education (a campaign promise by Mr. Kenney) and about 50% to other city programs, schools, employee benefits and a “healthy beverages tax credit.”

Because the tax is on distributors rather than directly on consumers, it was not put on the general ballot for public vote, even though there is little doubt all or most of the tax, should it withstand a court challenge, would be passed on to consumers in higher prices as have such taxes in other cities and countries.

“It is beyond dispute that only the state legislature can determine where and on what items a tax can be imposed,” former Pennsylvania Supreme Court Chief Justice Ron Castille said in an opinion piece in The Philadelphia Inquirer. He said the tax violates the “uniformity clause” of the state’s constitution that requires taxes be uniform across the state.

The American Beverage Association said the tax, and soda taxes in general, was regressive and discriminatory. The A.B.A. said it intends to sue the city to block the tax.

“The poorest in our communities often bear the financial brunt of these regressive taxes, which are ineffective at combating obesity,” said Michelle Minton in an article for the Cooperative Enterprise Institute. “Faced with a new tax on soda, some consumers may shift their calorie indulgences to other foods or drinks, some may cut back on other grocery purchases and others will just pay the tax to get their favorite soda.”

The tax would add $1.08 to a six-pack of 12-oz sodas, $1.02 to a two-liter bottle of Diet Coke and 90c to a 10-pack of 6-oz juice boxes, doubling the price of some items depending on packaging.

Soda tax chart
The tax would add $2.16 to a 12-pack of sodas, $1.02 to a two-liter bottle of soda and 90c to a 10-pack of 6-oz juice boxes.

There are two primary differences between the Philadelphia tax and most others that are in place (Berkeley, Calif., implemented a 1c-per-oz soda tax in 2015) or that have been attempted but failed (New York City, Philadelphia twice under a different mayor and several others).

First, the tax is on a much broader range of beverages rather than focusing on caloric sweetened drinks. Reports indicate the mayor initially proposed a 3c-per-oz tax on sweetened beverages but later compromised with the City Council on the broader 1.5c-per-oz tax. Specifically, bill No. 160176 states that the tax will include, “Any non-alcoholic beverage that lists as an ingredient: any form of caloric sugar-based sweetener, including, but not limited to sucrose, glucose or high-fructose corn syrup; or any form of artificial sugar substitute, including stevia, aspartame, sucralose, neotame, acesulfame potassium, saccharin and advantame.” Also, “Any non-alcoholic syrup or other concentrate that is intended to be used in the preparation of a beverage” that include the caloric and non-caloric ingredients listed above. “Examples of sugar-sweetened beverages include, but are not limited to, soda; non-100%-fruit drinks; sports drinks; flavored water; energy drinks; pre-sweetened coffee or tea; and non-alcoholic beverages intended to be mixed into an alcoholic drink.”

Beverages not to be taxed include baby formula, “medical food,” any product that is more than 50% milk, fresh fruit, vegetables or a combination of the latter two, and unsweetened drinks to which a buyer may add or request the seller add sugar or syrups and concentrates that the customer combines to create a beverage.

Second, the tax was not promoted as a way to fight obesity, diabetes or other ailments typically associated with consuming too many sweetened sodas. It was presented as a way to raise tax revenue for the city with specific uses for the money made public.

“Perhaps it was a wise tactical move because soda-tax campaigners have failed to persuade scientists or the public that the tax reduces consumption, obesity or diabetes,” said Jeff Stier, director of risk analysis for the National Center for Public Policy Research.

But there also were some common threads with other soda taxes, including big money spent on both sides of the campaign. Philadelphia magazine said the A.B.A. spent about $5 million on anti-soda tax advertising since March, while the pro-tax group 
Philadelphians for a Fair Future spent $1.4 million. Former New York Mayor Michael Bloomberg, whose attempts at a soda tax and a limit on the size of sodas in New York City a few years ago was overturned in the courts, and Texas billionaires John and Laura Arnold “poured cash into a pro-soda tax ad campaign,” The Philadelphia Inquirer said. Mr. Bloomberg was said to have contributed about $1.6 million in support of the tax.

There were two other points of interest in the latest soda tax campaign. First was the fact that Thomas Farley, who became Philadelphia’s health commissioner in February, formerly worked for Mr. Bloomberg in a similar role, according to a Reuters’ report. But Mr. Farley said he was “a relatively small player in the debate” because it was Mr. Kenney’s plan and did not focus on health issues.

A second interesting move came from the other side of the soda campaign. Politico, in a report from an interview with Mr. Kenney last week, said the city was offered $7 million by the beverage industry to help fund the pre-kindergarten program and scrap the soda tax effort. But the offer was not enough to fund the program, and Mr. Kenney already had enough City Council votes to pass the bill, he told Politico. Dow Jones Newswires reported that a 2011 soda tax effort in Philadelphia was abandoned after the beverage industry contributed $10 million to a local children’s hospital.

Dow Jones Newswires said the beverage industry has spent more than $100 million since 2008 to battle soda taxes, successfully winning 43 of those efforts. Mr. Bloomberg contributed about $10 million to promote a tax on certain beverages and snacks in Mexico that began in 2014.

Reactions to the City Council’s action were quick. Congresswoman Rosa DeLauro of Connecticut within hours of the vote called on Congress to “follow Philadelphia’s lead” and enact her SWEET Act that would put a national excise tax on sweetened beverages. Her bill was first introduced in July 2014.

On a pro-soda tax press conference call June 17, Howard Wolfson, senior adviser to Mr. Bloomberg, said the billionaire was preparing to back similar efforts in San Francisco and Oakland, Calif., later this year, and also may support a tax effort in Multnomah County, Oregon (which includes Portland), next year. Mr. Wolfson also did not rule out contributions from Mr. Bloomberg to Philadelphia’s legal costs if the A.B.A. sues the city.

“If Berkeley was a tremor, Philadelphia is an earthquake, and we expect there will be more earthquakes going forward,” Mr. Wolfson said.

Jim Krieger, president of Healthy Food America, which promotes anti-sugar policies, in a Politico article said, “Philly is really groundbreaking. It’s going to unleash the next wave of tax efforts across the country.”

But others see the Philadelphia tax as unique, noting the city’s struggles to fund programs and the nature of local politics.

So the debate continues on whether the Philadelphia tax will be the springboard for other successful soda taxes across the country, but there is little debate that the efforts will continue. In addition to those efforts already mentioned, the state of Alabama is considering a 1c-per-oz tax on sugary beverages to help fund Medicaid, with renewed efforts for a 1c tax also under way in Illinois.

All this comes as U.S. soda consumption has declined for 11 consecutive years through 2015.