There’s been a lot of legislative discussion of new taxes this session. This is occurring against a backdrop of a balanced budget and a recession that has hit households and businesses hard. Most of the proposals – capital gains, estate, and wealth taxes – have been aimed at the wealthy. The assertions that the state tax structure is in need of progressive reform rest on some flawed analysis, but never mind that now.
Departing from the tax-the-wealthy theme is a proposed tax on sweetened beverages. The Washington Research Council has a concise analysis:
SB 5371 would impose a statewide tax on distributors of sweetened beverages, with the intent to lower consumption of sweetened beverages and promote both foundational public health and health equity.
Under SB 5371, the tax rate would initially be 1.75 cents per fluid ounce. The rate would be increased by inflation each July 1. Distributors would be able to take a credit against the state tax due for the amount paid in sweetened beverage taxes to the City of Seattle.
The bill would create a “health equity account,” to which 60% of the new revenues would be directed. (The account would be “used to address social determinants of health in disproportionately impacted communities burdened by negative health outcomes.”)
The WRC points to the contradiction inherent in all “sin tax” policies.
Of course, the two purposes for the bill—to lower consumption and raise revenues for public health—are at odds. If such a tax is successful in reducing consumption, there would be fewer revenues for public health.
As WRC analyst Emily Makings writes, research on the effects of such taxes has been somewhat mixed. Experience in Washington has also shown the taxes to be unpopular.
In 2010, the Legislature imposed an excise tax on carbonated beverages at a rate of 2 cents per 12 ounces. Later that year, voters approved I-1107 (60.4% to 39.6%). Among other things, I-1107 repealed the carbonated beverage tax.
In 2018, I-1634 was approved 55.9% to 44.1%. It bans local taxes on groceries.
For that matter, most of the taxes under consideration this year are unpopular.
Also of interest – to return to the progressive/regressive theme – beverage taxes fall hardest on lower and middle income taxpayers. The Tax Foundation reports,
Several U.S. cities in recent years have sought to expand their portfolio of taxes to include sugar-sweetened beverages (SSB) as a means to combat obesity, diabetes, and other diet-induced health problems. These reforms join the legacy of movements in behavior-correcting beverage taxes on alcohol and other “sin” products. Perhaps the most common complaint of these taxes, however, is their anticipated regressivity. For instance, Sen. Bernie Sanders (I-VT) presumed this in a 2016 op-ed against Philadelphia’s SSB tax, calling it “a regressive grocery tax that would disproportionately affect low-income and middle-class Americans.”[1]The views of these taxes stem from expectations of consumer expenditure patterns, and it seems likely that the spending on beverages as a percentage of income is likely to decline among high-income households. To the extent both these claims are true, taxes on SSBs perhaps represent the quintessential trade-off in tax policy between efficiency and equity.[2]
However, estimates on these expenditure profiles are lacking, and if regressivity is a concern it would be helpful to have some understanding of how regressive these taxes might be. This report seeks to contribute information on the income profiles of household expenditures and ounces of beverage for SSBs to better inform the public debate. More specifically, household purchases of sugar-sweetened beverages from 2004 to 2015 are examined for levels and trends according to their income profiles. Assuming that at least some share of such taxes would be passed on to consumers in the form of higher prices, the analysis demonstrates that any form such a tax may take will be regressively distributed among the consumers. Furthermore, the trends suggest that these expenditure profiles have become more regressive over recent years.
Much more in the TF analysis. The regressivity may not be a big deal in the overall consideration of the beverage tax and its role in state tax policy. But it merits a mention.
