In politics as in physics, for every action there’s an equal and opposite reaction. You don’t have to be Sir Isaac Newton to understand that a steep “sugary drinks tax” on soda drinks would sharply cut sales of Coca-Cola, Pepsi-Cola, Mountain Dew, Dr Pepper, Gatorade and others.
This reflects neither Newton’s Third Law of physics nor everyday rocket science, but basic Econ 101, which the economic illiterates on the Philadelphia City Council obviously slept through. It’s a lesson the economic illiterates in other cities, who may be thinking of similar taxes, should keep in mind.
Naturally, the tax, which was effective on New Year’s Day, has generated far less revenue than the proponents expected, and naturally they have already begun to spend what they don’t have. Not only that, shoppers have gone beyond the city limits to buy their favorite sugary beverages out of reach of the tax.
The levy, at 1.5 cents per ounce, adds 30 cents to the price of a 20-ounce bottle; about $1 to the cost of a two-liter bottle; and nearly $2 to the price of a gallon jug of sweetened iced tea.
The tax was meant to curb consumption of sugar, which (with other foods) contributes to obesity, diabetes and other health woes. But the actual if unspoken intent was that Philadelphians would continue guzzling sugary drinks, but at the higher prices that would increase tax revenues flowing to City Hall.
Many Philadelphia shoppers who go beyond the city limits to buy soda pop are, since they’re already there, buying their groceries there, too.
The sharp decline in soda-pop sales in Philadelphia has not gone unnoticed and unremarked by soft-drink bottlers, distributors and retailers, many of whom have laid off workers, the collateral damage of not-so-friendly fire. Pepsi will lay off 100 workers at two Philadelphia bottling plants and at a third plant in nearby Wilmington, Del. Many of the vanishing jobs have been well-paying union jobs. “Our worst fears have been realized,” says Daniel Grace, an officer of Teamsters Local 830.
PepsiCo reported a 43 percent drop in sales since Jan. 1 and announced plans to lay off up to 100 employees, Mr. Grace says, and Canada Dry is laying off 25 workers owing to a sharp decline in sales. Coca-Cola is thought likely to follow.
The Pennsylvania Merchants Association says major layoffs of grocery-store workers are inevitable. “We predicted this dire outcome from the outset,” says Mr. Grace, who says his union “pleaded” with the City Council not to enact the tax. “I hope they can live with themselves after knowing that their actions led to the devastation of an industry in the city and the loss of so many family-sustaining jobs.”
They probably can. City Hall, which envisioned spending the anticipated windfall on more pre-kindergarten education, turns facts upside down, and blames the bottlers for “holding hostage the jobs of hardworking people in their battle to overturn the tax.”
Mayor Jim Kenney says the bottlers are greedy and accuses grocery stores and restaurants of price gouging because they’re “passing the tax they should be paying onto their customers.” If His Honor had not slept through Econ 101, he would have learned that taxes and other costs of doing business are always passed on to consumers. Money grows on trees only at City Hall.
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