DC’s proposed excise tax could hike prices of soda and other sugary drinks

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Dive Brief:

  • Just a week after the D.C. Council put an additional 2% sales tax on soft drinks, it is considering a substitute plan to place a 1.5 cent-per-ounce excise tax on soda and other sweetened beverages, The Washington Post reported. The proposal, introduced Oct. 8, has support from eight of the 13 council members, according to the Washington City Paper.
  • It affects soda and any sugary drinks such as Gatorade, sweetened ice coffee and orange juice with added sugar, The Post said. However, the tax would not be levied on diet soda or other beverages containing artificial sweeteners, beverages with milk as the main ingredient, alcohol and all-natural juices. The estimated $21 million in annual revenue would go to educational and food programs.
  • The beverage industry is opposing the excise tax. Ellen Valentino, a spokeswoman for the D.C. Beverage Association, called it “a big mistake” that will cut jobs and hurt local retailers. “People will flee in order to purchase beverages and other grocery items outside the city’s borders,” she told local radio station WTOP.

Dive Insight

Unlike the 2% sales tax, which hiked the retail cost of soda and sugary beverages at the register, the excise tax would be levied on specific products and be paid by the retailer or distributor and potentially passed on to the consumer.

Council members unsuccessfully tried to pass a soda excise tax in 2010, but may have a better chance this time around. Despite the beverage industry’s opposition, a majority of council members are listed as bill co-sponsors and numerous community organizers are on board. 

The bill introduced Monday would add about $1 to the price of a 2-liter bottle of soda. Manufacturers and retailers most likely would then hike prices to consumers, who may be dissuaded from buying the products. However, since D.C. is close to both Maryland and Virginia borders, those wanting to avoid the tax could buy all the soda and sweetened beverages they want there and not pay it.

Several other localities and one state — West Virginia — have enacted excise taxes on soda and other sweetened beverages. They include four cities in California; Boulder, Colorado; Philadelphia; Seattle and the Navajo Nation. Cook County, Illinois, adopted a penny-per-ounce tax in 2017 but repealed it two months later under pressure from the American Beverage Association. California’s proposed tax didn’t make it through the state assembly this year, although it’s likely to be brought up again, perhaps via a ballot measure.

To head off such proposals, Arizona and Michigan have passed legislation prohibiting local governments from adopting food and beverage taxes. But places where such taxes have passed report some success in reducing consumption.

A study published earlier this year took five years of data from Berkeley, California, and found a 52% decrease in soda consumption in the first three years after the tax was adopted. After two months of Philadelphia’s soda tax, which is the same rate as the proposed D.C. excised tax, a study found residents were about 40% less likely to drink sugary drinks daily than those in other cities. Philadelphia’s tax projections, however, were lowered 15% in March 2018 and didn’t make major changes in the population’s consumption of healthier fare, so its tax could face a repeal.

Soda companies and makers of sweetened beverages will likely gear up to fight the D.C. excise tax. The industry has actively opposed such taxes for the past decade. According to Winsight Grocery Business analyst Phil Lempert, it has forked out $48.9 million since 2009 to oppose them.

Meanwhile, the American Academy of Pediatrics and the American Heart Association are urging federal and state action to reduce consumption of sugary beverages through new marketing campaigns and other action, including excise taxes. Milk and water should be the default drinks for children and in vending machines, they say, and soda should not be allowed to be purchased with SNAP benefits. While these initiatives face an uphill climb in the policy arena, the joint effort shows the issue is not going away anytime soon.


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