Washington, DC should Avoid a Tax on Sugary Beverages

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The Honorable Phil Mendelson
Chairman
Council of the District of Columbia
1350 Pennsylvania Ave NW
Washington, DC 2004
 
Dear Chairman Mendelson, 
 
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, I write to express our strong opposition to the “Healthy Beverage Choices Act of 2019.” As you know, this legislation would institute a 1.5 cents per ounce tax on sugary beverages sold within the District of Columbia. This misguided, regressive legislation would disproportionately affect vulnerable taxpayers, raise costs for consumers, and impose additional burdens on small businesses. We hope you stand with taxpayers by rejecting this misguided legislation.
 
If you are unfamiliar with NTU, we are a Washington, D.C. based organization that engages on policy matters at all levels of government. Every one of our fifty years of existence has prioritized policies to lessen burdensome taxation, streamline inefficiencies in government, promote private markets, and so much more. Our work has culminated in victories across the United States, from stopping property tax hikes at the local level, advocating for responsible budgets in state capitols, and bringing to fruition historic tax cuts in Congress. All this has been made possible by our dedication to taxpayers and the free market. 
 
NTU has long advocated for sound tax policy to ensure the tax code is fair, neutral, and not overly burdensome. Sugary beverage taxation is one such area that we have taken a particular interest in due to its negative and regressive effects on taxpayers. We hope you keep the following points in mind as you contemplate the consequences - both intended and unintended - should this legislation become law.
 
Harms the Economy
 
Taxes, particularly targeted ones, create distortions in the economy that harm businesses in our community, especially smaller businesses. The largest impact of this tax will be seen in the thousands of small businesses that compete with stores on the other side of the state line, including grocery stores, restaurants, corner stores, bodegas and movie theaters. Small businesses that operate close to the borders of Maryland and Virginia, both of which do not have an excise tax on soda, will feel the biggest hit in their revenue figures. Consumers can easily travel to a nearby store just outside of the District’s jurisdiction to avoid the high cost of the tax. In Philadelphia, after the city enacted a 1.5 cents per ounce tax, sales in nearby areas surged by 43 percent.
 
While the proposed tax is bad for all consumers, people in underserved communities will be hit especially hard since these working-class communities rely on neighborhood businesses for their livelihood. An Oxford Economics study found Philadelphia’s sugary beverage tax was responsible for 1,200 job losses and $80 million in reduced GDP. Perhaps most concerning, there was a $54 million decline in labor income, a figure that most directly harms working people. This occurred because many stores that were facing vastly reduced revenue cut back their staff or slashed employee hours in order to keep costs manageable. These worker layoffs and reduced hours primarily affect lower-income populations.
 
Politically Unpopular
 
While some polls may suggest soda taxes are popular among the public, in jurisdictions that have them in place they are as unpopular as ever. That’s because, after the significant price increases and other devastating economic effects, public opinion shifts rather dramatically. For example, in Chicago, a 1 cent per ounce tax may have been unpopular from the start, after feeling the pain of the tax, public sentiment quickly soured and a whopping 87 percent of voters supported its repeal. And after being in place for only 71 days, the government  repealed their tax. 
 
It’s a similar story in Philadelphia. Originally the tax was popular, but support has fizzled out. A recent poll found 65 percent of residents opposed the tax, with 71 percent of African-American respondents opposing the tax, according to the nonpartisan Pew Charitable Trust.
 
Fails to Improve Health Outcomes
 
Proponents of beverage taxes often argue a higher priced good will encourage consumers to purchase alternative options. Yet “alternative” doesn’t necessarily mean healthy. People who are denied a sweetened-beverage are more likely to substitute it for sugar found in another form to escape the tax. A recent study by health economists found beverage taxes do little to lower overall obesity rates. They even noted the diabetes rate in Ohio increased despite including soda in their statewide sales tax. Even if soda consumption does decline, this doesn’t mean that overall sugar consumption will decline or that there will be reductions in obesity. It simply means that soda or other sugar-sweetened beverages won’t be consumed as much as before the tax.
 
In 2018, the New Zealand Institute for Economic Research published their review of 47 studies investigating the effectiveness of sugar taxes and found soda taxes don’t work. In 2014, management consultancy agency McKinsey released an analysis of 44 interventions governments could undertake to reduce obesity, with soda taxes found to be one of the least effective.
 
We hope you continue to keep taxpayers in mind as you determine if this legislation will be a positive for your constituents, consumers, taxpayers, and our city. We look forward to working with you on this matter in the future to ensure all voices in this conversation are heard.
 
Sincerely, 
 
Thomas Aiello
Policy and Government Affairs Associate