Seattle has decided to impose a 1.75 cent per ounce tax on all sugary beverages within the city with the hopes of raising a $15 million revenue stream that it will use for programs to help people “have better access to fresh fruits and vegetables,” as Seattle station KIRO 7 explains. The price of Gatorade Frost Variety Pack at Costco, usually $15.99, with the $10.34 tax, shot up to $26.33, leaving customers with sticker-shock.
There’s more than a few problems with the new tax scheme, which a sign right next to the Gatorade in Costco helpfully demonstrates.
As with all excise taxes, this one is easily avoided: customers can visit Costco stores in nearby Tukwila or Shoreline and skip paying the City of Seattle’s Sweetened Beverage Tax. Customers are less likely to make extra inconvenient trips if the price changes are barely noticeable–but with such a steep price change, many residents will likely take the extra trip.
Some are saying they will switch to diet soda instead, which city officials say is “the point,” according to KIRO7. “Not necessarily to switch to diet soda, but getting consumers to go for healthier options.”
The position the tax advocates take is oddly contradictory, as Scott Drenkard of the Tax Foundation summarized on Twitter:
“First they interview people at the Costco who are rightfully shocked at how high prices on soda and sports drinks are now (they are almost doubled). Then they interview a public health advocate who says ‘that’s right! We want these prices to change people’s behavior and slow sales!’ Then they talk to the consumer, ‘think you’ll change your behavior, maybe even shop somewhere else?’ And she’s like, ‘ya the Tukwila store is close enough.’ Then they ask a city council member if this will hurt local [business], who says ‘there is no data’ suggesting that. Then the SAME public health advocate says that people won’t respond to price increases, shopping elsewhere because it isn’t ‘worth their while.”
If advocates are truly concerned about public health and want people to change their behavior by consuming sugarless beverages then the tax will indeed slow sales and hurt local businesses. It has to because that’s the only way it will actually induce people to lower their calories; assuming you believe that this model works.
But the government doesn’t actually want everyone to switch away from sugary drinks or it won’t be able to collect that $15 million it’s hoping for. That’s why using the tax code to punish or reward behavior is tragically short-sighted.
Government attempts to disincentive certain behavior often have subversive effects (beyond forcing people to take longer trips or purchase sugar-free brands.) The point of these policies is to drastically reduce usage; but while the pricing cuts demand, it also fuels smuggling and black markets.
A steep soda tax opens up the way for an illegal underground trade in soda. Before you laugh, realize that’s exactly the problem that arose in Philadelphia when similar taxes were introduced. In New York, these types of sin taxes led to stratospheric taxes on cigarettes, which buoyed an underground black market in “loosie” cigarettes. Tragically, police enforcement of the tax also led to the death of Eric Garner on Staten Island, who died in police custody after allegedly resisting arrest.
His action, selling loose cigarettes, was only a crime because of these types of policies. Governments, including the City of Seattle, should avoid creating similar situations.