This Wednesday, the Affordable Housing, Neighborhoods and Finance Committee will attempt to construct and vote on an ordinance levying an excise tax on sweetened beverages, with the intent of voting it into law next Monday.
So far, the City Council has had three committee hearings on the topic. The only thing that’s clear is that there is little consensus on pretty much any of the core issues.
Here are my previous summaries of the first and second hearings. The third hearing was last Friday, just before Memorial Day weekend and leaving just one full business day (Tuesday) before the final committee meeting.
Here’s what we’ve learned through these three meetings:
- The community is deeply split. There was a long public comment session on Friday, filled with people testifying both for and against based upon whether they will be economically advantaged or disadvantaged by the soda tax. Those for: farmers markets, providers of early learning programs, and providers of food access programs. Those against: the Teamsters (who represent drivers for distributors that might lose their jobs), the Northwest Grocery Association, small business owners, the Retail Industry Coalition of Seattle, and local natural beverage manufacturers.
- There isn’t agreement on whether to tax “diet” beverages. It’s well understood (reinforced by the city’s Racial Equity Toolkit analysis) that a tax on sugary beverages is a highly regressive form of taxation since those beverages are disproportionately consumed by people in lower economic brackets. The Mayor proposed taxing both sugared and artificially-sweetened drinks to spread the tax, but according to the Council’s public health expert that will significantly reduce the public-health impact of the tax since it will remove an incentive to switch from sugared to diet drinks. In other words: the most regressive tax is the one with the greatest public health impact.
- There isn’t agreement on how much the tax should be. Originally the Mayor proposed 2 cents per ounce, though he lowered it to 1.75 cents when he added in diet beverages. Most cities and counties that have imposed soda taxes have aimed for 1 cent per ounce, including Berkeley; Oakland; Albany, CA; San Francisco; and Cook County, IL. Philadelphia opted for 1.5 cents, and Boulder, CO is the outlier at 2 cents. On Friday, Council member Herbold argued that even 1.75 cents is too high and said that she expected to offer an amendment to lower it to 1 cent per ounce.
- There’s no clear picture on how much revenue it will generate. The beverage industry association has accurate figures on consumption is different parts of the country, but they don’t share that data. Other groups such as the Rudd Center for Food Policy and Obesity have their own estimates. The city’s analysts used an estimate for the Pacific coast (which apparently consumes 70% of the national average), though it also looked at recent data for Berkeley and Philadelphia who already have their soda taxes in place. The American Beverage Association claims that Washington state, however, consumes at 83% of the national average. None of those figures, however, may accurately represent Seattle consumption. On top of that, one needs to estimate the “price elasticity” of beverages: how much consumption decreases as the price increases. A generally accepted price elasticity factor for beverages is -1.21, meaning that for every 1% increase in price, there will be a 1.21% drop in consumption. Assuming the entire increase is passed through to consumers, a 1.75 cent tax would be a 24.7% increase in price and would lead to a 28.6% decrease in consumption. But it’s actually more complicated than that, because if the tax is also imposed on diet drinks that will change the “substitution” pattern, and the overall decline in consumption, is a manner that is not well understood. Nevertheless, the city picked a set of assumptions and estimated that a tax on sugared beverages will generate 2018 annual revenue of $14,820,000, and including diet beverages will take the total revenues to $23,380,000. The Rudd Center has its own calculator that you can use to try your own version of the tax. After the first year, it’s unclear what will happen because of “short-term elasticity” — much like we saw with the 520 bridge when tolls were re-introduced, after a while, consumption might rebound after a while.
- There are many ideas, but still little agreement, on what to do with the revenues. The Mayor’s original pitch for the soda tax, back in February during his State of the City speech, was to pay for his “education action plan” to address disparities in educational outcome in underserved communities, and Council President Harrell supported that idea (he has been a fervent supporter of addressing educational disparities through programs such as the 13th Year Promise). Council member Burgess no doubt would like to see more money go to further expansion of the Seattle Preschool Program, which he has shepherded through its formative years. But several other Council members, most notably Juarez, have argued forcefully for spending the revenues to directly increase healthy food access as well as to address public health issues related to nutrition, diabetes and obesity. Some also want to see job retraining programs for those who might lose their jobs when beverage consumption declines, including truck drivers. So the list of potential programs that city officials would like to see funded is long, but there is no consensus around which are the priorities. To make matters worse, because this tax is expected to drive consumption down over time, the tax revenues will also decline over time. That means they don’t know how much money they will even have to spend on programs. In the short term, they want to handle this by setting aside 20% of predicted annual revenues as “uncommitted” and let a commission of community advisers make decisions about how to spend that chunk — if it indeed materializes. But even if the Council reaches consensus on priorities, it’s difficult to use a declining revenue source for sustaining important programs that people depend upon.
- They can’t decide who to exempt from the tax. The Council members have heard an earful from small business owners and direct-to-consumer producers that the tax will create severe economic hardship for them. They are considering options to exempt one or both from the ordinance. They were also looking at whether to exempt products sweetened with stevia, though city officials claim it would be too difficult to enforce that and the number of products using stevia are too few to make a significant difference. The ordinance is also expected to exempt “mix at home” products such as Kool Aid and other powdered drink mixes, frozen concentrate, and SodaStream syrups. The Teamsters also suggested exempting any product where “milk” was the first ingredient listed on the package, in an attempt to carve out an exception for chocolate milk. Of course, the more exemptions they create, the less revenues they generate.
- They’re not of one mind on why they’re even imposing the tax. The Mayor wanted to do it to fund his education action plan. Some of the Council members, especially O’Brien, want to do it specifically as a public health intervention to drive down consumption of unhealthy drinks. Others see it as a new revenue source, which is hard to come by these days given state restrictions on cities levying taxes. The differences are meaningful: if you care more about the revenues, you want to tax diet beverages as well; conversely, if you care more about the public health intervention then you want to leave diet beverages out — but you still need to wrestle with the social justice implications of a highly regressive tax.
Given all of the open questions, it’s unclear why Council member Burgess is rushing this bill through. Last Friday, Burgess made vague references to the legislative process being deadline driven, without specifying those deadlines or what specifically is driving them. I asked Burgess’s office to clarify the urgency and deadlines, but I have yet to receive a response. It seems unlikely that he will be able to bring his colleagues on the Council to consensus on many of these issues by Wednesday, so the resulting legislation will be a “mix and match”of the specific policy choices that each manage to gather a majority of votes — regardless of whether they collectively form a cohesive bill. That’s certainly not a recipe for good legislation, nor good government. They will go into Wednesday’s deliberations not knowing why they’re doing it, who it’s going to help and hurt, how much money they’ll raise, or how that money will be spent.
In the meantime, it’s expected that Wednesday morning’s committee meeting will also be the Council’s first public discussion of a potential income tax, and Council member Sawant is rallying her troops to show up and voice their support. So on top of everything else, there will be several organized advocacy groups fighting for airtime during the public comment session to speak on multiple topics.
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The contradiction between health intervention and regressive tax isn’t factual, rather it’s a logical contradiction. The key point (as you mention) is whether it works – the price elasticity question, along with some awareness of the actual substitutions. I’m taking for granted that it’s a genuine and significant health issue, and if it all adds up to significantly less consumption: that should far more than offset the fairly trivial direct economic impact of the tax, so the regressive tax is a bogus issue.
If it turns out that it likely wouldn’t have a health benefit, and it’s a effectively just a complicated tax on a randomly chosen consumer good,
it should be dropped.
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