Sweetless in Seattle? City council adopts new tax on sugary drinks. Do local taxes limit the state’s revenue raising options?

As expected, the Seattle City Council yesterday adopted a new tax on sugary soft drinks. The Seattle Times reports:

The Seattle City Council on Monday approved a new tax on distributors of sugary drinks such as soda pop.

Proponents said the tax would reduce consumption of unhealthful beverages and help the city provide better access to nutritious foods in low-income neighborhoods and communities of color…

The council ultimately settled on a rate of 1.75 cents per ounce, which means the tax would be about $1.18 for a 2-liter bottle of soda.

Unsurprisingly, it’s kind of complicated.

Diet soda won’t be taxed, and the council also chose to exempt baby formula, medicine, weight-loss drinks and 100 percent fruit juice.

At some point, we may expect at least a few of these exemptions to be labeled tax loopholes as the council seeks to boost revenues.

Sports drinks such as Gatorade, energy drinks such as Red Bull and fruit drinks such as Sunny D all will be taxed, along with syrups used in soda-fountain pop.
Here’s how the money would be spent.
The tax is expected to raise about $15 million per year. Some money will support the city’s Fresh Bucks program, which helps people using food stamps buy more fruits and vegetables at farmers markets.
The proposal, which may yet be subject to a referendum, was supported by some health organizations. It also faced some opposition.
But soda companies, many convenience-store and restaurant owners and the Seattle Metropolitan Chamber of Commerce opposed it, as did the Martin Luther King County Labor Council and a Teamsters union with workers in the soda industry.
It’s another of those odd tax policy efforts that seeks simultaneously to boost revenue and discourage consumption. The more they succeed in the latter objective, the more they fail at the former.
The council apparently recognizes some negative employment consequences. Reporter Daniel Beekman writes,

The council reserved up to $1.5 million in the first five years of the tax to help such workers retrain for new jobs.

The Times also looks at how the city’s new tax compares with other municipal soda pop taxes across the country.

The Seattle City Council passed the tax Monday with the hope of reducing health risks like diabetes and obesity and putting some extra money in the city’s coffers. The tax will be placed on distributors of sugary drinks, but the extra costs will most likely be passed on to consumers.

Seattle will have the second-highest tax on sweetened drinks in the United States.

As mentioned above, a referendum is possible. Crosscut reports,

Its passage does not necessarily guarantee its future: Councilmember Tim Burgess told SCC Insight recently that he expects opponents to file a petition for referendum, which would pause the ordinance from becoming law and likely push it onto the ballot for voters to decide, either in November or August 2018. Speaking after the vote, Burgess said the challenge is likely to come from the American Beverage Association, which represents makers of soft drinks and other non-alcoholic drinks.

If that happens, there will likely be a tense political fight. In addition to opposition from lobbyists for multi-national soda corporations, the tax is under serious heat from parts of Seattle’s advocacy community, who believe it to be regressive and unfairly targeted toward low-income people, who are the most likely to consume sugary soda.

Meanwhile, in Olympia, budget negotiators continue to wrangle over a revenue package that might include a tax on bottled water.

All of which raises the question of whether and when do municipal tax policies begin to impinge on the state’s revenue-raising abilities.