Seattle soda tax mostly paid by consumers. Surprised?

Seattle’s soda tax has generated a lot more money than anticipated. And nearly all that money has come from consumers, as everyone should have anticipated. The Seattle Times reports,

Nearly 100 percent of Seattle’s new tax on the distribution of sweetened beverages has been passed on to consumers through higher in-store prices, a new report estimates.

The report stares,

Key findings: Six months after implementation, this study finds that the tax on sugary beverages incurred by distributors is being passed through to consumers via higher retail prices of these beverages. This confirms the hypothesized result of the tax. (A separate study of the impact of the tax on beverage consumption is underway.)

On average, prices increased for nearly all beverages types subject to the tax.

In Seattle, averaging across all store types and beverage types, the price of beverages subject to the tax in Seattle increased by an average of 1.70 cents per ounce, over and above increases seen in the comparison area. Since the tax is 1.75 cents per ounce, this indicates 97% price pass-through of the tax on average.

Price increases differed by beverage type.

In Seattle, all beverages subject to the tax increased significantly in price, with the exception of the caloric flavor-syrup add-on at coffee shops. The average pass-through rate by beverage type for beverages subject to the tax ranged from 62% for bottled sugary coffee beverages to 111% for energy beverages. The average pass- through rate for soda was 102%.

Price increases in Seattle differed by store type.
In supermarkets and superstores: while the price of taxed beverages increased (with average pass-through of 86%), the price of non-taxed beverages did not increase significantly.

In grocery stores, drug stores, and small stores: the price of taxed beverages increased significantly, with an average pass-through greater than 100% (1.82 cents per ounce in grocery and drug stores and 1.80 cents per ounce in small stores). In these store categories, on average the price of non-taxed beverages also increased significantly. The price increase was 0.47 cents per ounce in grocery and drug stores and 0.77 cents per ounce
in small stores (which equals 27% and 44% of the size of the tax). In these types of stores, the price increases among non-taxed beverages appears to be due to increases in the price of diet soda, diet energy beverages, and to a lesser extent, bottled tea and diet sports beverages. The price of bottled water did not increase and, in the majority of store types, the price of milk also did not increase.

The ST explains how the tax flows down to consumers.

Seattle’s tax of 1.75 cents per fluid ounce, which took effect in January 2018, is charged to distributors of sugar-sweetened beverages. But the distributors can pass the tax on to stores and the stores can pass the tax on to consumers.

Of course they do. If the tax were designed to reduce consumption of sugary stuff, it would only work if it resulted in price increase to consumers. The Seattle tax led to Initiative 1634, which preempts local grocery and soda taxes (though it leaves Seattle’s soda tax in place). Voters overwhelmingly passed the measure last November.