Seattle Soda Tax Prompts Price Increases, Small Business Pain

Similar taxes in other cities have led to lost jobs and without bringing in the expected revenue.

By Christian Britschgi of Reason.

"When Seattle's soda tax passed in July of last year, its proponents promised that it would accomplish all good things.

Tacking on just 1.75 cents per ounce to sweetened beverages, said then-mayor Ed Murray, would not only encourage healthier consumption habits, but also generate enough revenue to subsidize trips to the farmers market, to pay for free community college, and even to roll back "white-privileged, institutional racism."

On January 1, the tax went into full-effect, and while all those vaunted progressive goals no doubt are just over the horizon, Seattle shoppers are starting to see a more immediate effect of the tax: massive price increases.

The cost of a typical can of coke is now 20 cents higher. That adds up fast: A typical 36-can case of soft drink is now $7.56 more expensive, nearly doubling the price at many retail outlets. Stores are only too willing to let customers know who is responsible for the cost increases.

Local Seattle press and social media have been filled with images of Costco price tags that now bear a "City of Seattle Sweetened Beverage Recovery Fee" to make up for the new tax, along with an inscription that reads "this item is also available at our Tukwila and Shoreline locations without the City of Seattle Beverage Tax."

"We feel an obligation to let people know what [the tax] is, and let people know it's only in Seattle. Our real intent was to educate members," John McKay, chief operating officer for Costco's Northern Division, told the Seattle Times.

Many cost-conscious shoppers will no doubt follow the prompt and make their bulk purchases of soda and sports drink outside city limits.

That will help Costco—and other large retailers with locations both in and around Seattle—weather the tax's effects. Smaller businesses located exclusively within the city will not be so lucky. These owners can either up prices and risk losing customers or accept a lower return on the drinks they do sell. Either way, their profits are going down.

"My soda is like $2.49. If I double it, that's like $5. That's like the price of the burger," the owner of 206 Burger, which has two locations in the city, told a local NBC affiliate.

Small business owners were among the most vocal opponents of the tax as it worked its way through the city council, with many warning of possible store closures and job losses.

But proponents are standing firm, claiming that the tax won't hurt business. It'll just change consumers' preferences, they say. Victor Coleman of the pro-tax Healthy Choices Coalition told Seattle's Fox affiliate that people in other cities with soda taxes "are simply choosing to purchase other grocery items."

The evidence suggests otherwise. Philadelphia implemented a 1.5-cent tax on soda in January of last year. By March, Pepsi had decided to discontinue the sale of 12-packs and 2-liter bottles in the city. It also opted to lay off some 80–100 of its workers. By August, the marketing firm Catalania found a 55 percent decline in the sale of carbonated soft drinks within the city limits—and a 38 percent jump in stores just outside of Philadelphia.

Revenue from Philidephia's soda tax has also proven disappointing, coming in at $7 million below projections for fiscal year 2017.

Such results were enough to get Cook County, Illinois—which contains Chicago—to repeal its highly unpopular soda tax.

So far Seattle is sticking by its soda tax, which it is counting on to bring in $15 million in its first year. That revenue is intended to pay for a grab bag of progressive goodies, including more educational services, $2 million for subsidies to farmers market shoppers, $1.4 million in community college tuition assistance, and $500,000 to retrain beverage industry workers who lose their jobs.

Should revenue prove as disappointing in Seattle as in Philadelphia, those soon-to-be unemployed beverage workers might be out of luck entirely."