Are Soda Taxes Worth Their Cost?

Philadelphia’s soda tax is going flat. The new levy has raised prices, diminished sales, and led to industry layoffs. It’s also failing to meet revenue projections, according to the Philadelphia Business Journal.

The tax raised $6.5 million in April, which is less than the $7 million generated in March and below the $7.7 million needed to reach the city’s estimate. A city official defended the tax, cautioning that the April figure is preliminary. However, as the journal points out, collections will need to perform well above normal over the next two months if the city expects to hit its revenue target for the current fiscal year.

The soda tax should serve as a cautionary tale for policymakers who may view so-called “sin” taxes as a budget fix. Sin taxes are an unreliable source of revenue and tend to disproportionately affect people with modest to low incomes. Philadelphia’s experience thus far is no exception.

For example, one local shop owner is finding it more difficult to make ends meet. Enerolina Melendez has already had to lay off one employee since the soda tax went into effect. Now she's struggling to help her family pay for school. She now feels that her hard work is no longer enough to be successful:

I got into this business to achieve the American Dream. I thought that if I worked hard enough I would be able to build a good life for myself and also be able to leave my children better off.

But while I'm still working long hours on weekends to keep my business going, it is no longer the ladder to the middle class that it once was because of Philadelphia's new beverage tax.

City officials and other proponents claim the tax is a net positive because it’s creating jobs in education and providing children access to Pre-K. Yet, this isn’t a sufficient justification for putting people out of work or increasing the price of groceries.

As my colleague James explained in a post last year, Pre-K programs have produced disappointing results in cities where outcomes were studied. One prominent 2012 study found no clear positive long-term impacts for children enrolled in the Head Start program. Despite the evidence, support for government-funded preschool persists, taking the focus away from policies that can benefit students, like Education Savings Accounts.

If the City of Philadelphia—or any city for that matter—wants to improve its schools, putting parents in charge of their child’s education is the key. This path is preferable to a punitive tax imposed to fund programs that do not have a track record of success.

Eliminating jobs through a new tax is simply indefensible when fairer alternative to improving education exist.

Policymakers have an obligation to purse the options that best meet the needs of everyone. In this case, that means repealing the soda tax and freeing more students from the city’s violent and failing schools.