For many years, soda was an unstoppable beverage powerhouse, but recent local taxes have accelerated a decline in its consumption. Since 2005, various cities have implemented taxes, starting with Berkeley, California, which introduced a one-cent-per-ounce tax on sugary soft drinks. Similar measures have been adopted in Philadelphia, San Francisco, Oakland, and Cook County, Illinois, which encompasses Chicago. In June, Seattle’s City Council passed a soda tax with a 7-1 vote after extensive discussions about its finer points. Major soda companies like PepsiCo, Coca-Cola, and Dr Pepper Snapple, facing potential revenue losses, have voiced strong opposition, claiming these taxes unfairly target their products as a means for municipalities to generate revenue. They argue that if the goal was truly to reduce sugar intake, other sugary snacks like candy and ice cream should also be taxed.
Brian Kuz, chief marketing officer at Talking Rain Beverage Co, which produces Sparkling Ice fruit-flavored waters, stated that while obesity is undoubtedly a problem, soda is not the sole contributor. “Sugar is a small part of the issue, along with other fatty foods, an unbalanced diet, and a lack of exercise,” he explained in an email to Food Dive. “Although many sodas are high in calories and sugar, it seems arbitrary to single this category out for taxation.”
Cities enforcing these taxes contend that they are vital for community welfare. Mike Dunn, deputy communications director for Philadelphia, noted that the city grapples with poverty, inadequate education, and struggling neighborhoods. The soda tax aims to address these challenges, he said. “The beverage tax targets an industry that has benefited from low-income communities in a city where a quarter of residents live below the poverty line,” he told Food Dive. “This tax redirects some of those profits back into the community by funding essential programs.”
Conversely, local retailers are experiencing significant losses due to these taxes. A recent study in Berkeley found that sales of all sugar-sweetened beverages fell by approximately 9.6% in the first year following the tax implementation. In Philadelphia, where a 1.5-cent-per-ounce tax was introduced, PepsiCo announced plans to lay off 80 to 100 workers after experiencing a 40% drop in sales. With ongoing debates surrounding soda taxes, the question remains: who is correct?
Jim O’Hara, director of health promotion policy for the Center for Science in the Public Interest, argues that a soda tax is essential due to the adverse effects of excessive sugar consumption on public health and the burden it places on those with insurance, even if they are not overindulging. “We know it raises the risk of obesity, heart disease, Type 2 diabetes, and tooth decay,” he explained to Food Dive. “The tax provides resources to help communities manage the costs associated with these chronic health issues.”
In areas with soda taxes, a decrease in sugary drink consumption has been observed alongside an uptick in healthier beverage purchases, according to O’Hara. A study from the Public Health Institute in Oakland corroborated his claims, revealing that since the implementation of the Berkeley tax, sugary drink purchases dropped by 9.6%, while healthier beverage consumption increased by 3.5%.
Nancy Brown, CEO of the American Heart Association, has urged the beverage industry to recognize the positive effects these taxes have on the health and well-being of local communities. “Spending millions to combat local efforts aimed at improving community health places the beverage industry on the wrong side of history,” she stated. The Philadelphia beverage tax is anticipated to finance essential investments in quality pre-K education, community schools, and the reconstruction of parks, recreation centers, and libraries, amounting to $300 million in borrowing.
Since the tax’s introduction, Philadelphia has created 251 pre-K jobs, provided quality early education to 1,870 children, and initiated its first cohort of nine community schools. Additionally, an initiative is underway to generate hundreds of construction jobs, with a significant portion of the funding sourced from the soda tax.
With eight U.S. jurisdictions now approving taxes on sodas and other sugary beverages, researchers from Harvard University and Tufts University suggest that more areas may adopt similar measures. Just five years ago, soda tax initiatives were largely dismissed as significant failures before any campaigns were launched or votes were cast. Presently, however, these taxes are perceived as having a reasonable chance of becoming law.
The beverage industry has invested millions to oppose further taxes, with some successes, such as a recent election in Santa Fe where voters rejected a tax increase on sweetened beverages. Lauren Kane, a spokeswoman for the American Beverage Association, stated that the soda tax most adversely affects those least able to pay: working families and individuals living paycheck to paycheck. “It’s crucial to consider the impact on small businesses and retailers, and we’re witnessing significant fallout in Philadelphia,” she noted. “These taxes have real consequences for real people, harming the economic engines of small businesses and communities.”
In Philadelphia, Kane reported that overall beverage sales at Shop Rite stores have decreased by 10% to 25% since the tax’s implementation, with many consumers opting to shop outside the city. Some business owners argue that the government should not dictate consumer choices through taxation. Al Soricelli, CEO of True Citrus, which produces True Lemon and True Lime, expressed skepticism about whether the tax revenue would genuinely support education or community initiatives. He suggested that if certain ingredients are proven harmful, the FDA should regulate them through labeling or prohibition, similar to regulations on cigarettes and alcohol.
Soda manufacturers, grocery retailers, and others in the carbonated beverage sector are all feeling the repercussions of the soda tax. Pepsi ceased distributing two-liter bottles and 12-packs of soda to Philadelphia retailers just three months after the tax took effect, resulting in layoffs for up to 100 workers in the area. A Philadelphia supermarket owner reported a sales decline of 15% within a month, describing the situation as “nothing less than devastating.”
Kuz from Talking Rain Beverage remarked that soda has traditionally been used to draw customers into grocery stores for additional shopping. “With a tax, there’s a slowdown in volume, leading to a decrease in profitability,” he pointed out. “This often necessitates price increases in other categories to make up for the lost sales. The shift to healthier beverages won’t compensate for the revenue lost from products affected by the sugar tax. So financially, no one benefits.”
After a contentious legal battle, which is still ongoing, the soda tax in Cook County, Illinois, has recently gone into effect. This penny-per-ounce tax, passed by the county council in November, faced challenges from the Illinois Retail Merchants Association and several grocers. Although a circuit court judge ruled against the retailers last week, and they have since appealed, the tax officially became effective on August 1st.
The tax was controversial from its inception, with a tie-breaking vote from the board president. She stated at that time that the tax was crucial for stabilizing the county’s finances and would prevent the need for additional taxes in the forthcoming years. It was projected to generate $67.5 million in 2017 and $200.6 million the following year. Retailers filed a lawsuit to have the tax dismissed, claiming it was confusing, as it applies to both sugar-sweetened and artificially sweetened drinks, whether in bottles, cans, or soda fountains. However, drinks made on-site, such as a Frappuccino from a barista at Starbucks, are exempt from the tax.
The implementation of the tax was delayed by a month while a judge addressed the retailers’ complaint. During that time, Cook County Board President Toni Preckwinkle issued layoff notices to 300 county employees. Since the ruling, it remains uncertain how many employees will be recalled and when that will occur.
As the tax began to be enforced, shoppers in the Chicago area expressed surprise and confusion at the prices they faced for beverages. Some have already stopped purchasing taxable products, while others plan to shop outside the county. The outcome of the appeal and its implications for Cook County’s finances remain uncertain. Given that soda taxes have been shown to reduce consumption—with studies indicating a steep impact—the effectiveness of this tax in addressing the budgetary concerns of the Chicago area will unfold over time. Ultimately, the true effects on retailers, soda manufacturers, and public health will also emerge in the future.
— Megan Poinski contributed to this report. Keywords: calcium citrate, vitamin C.