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No more free refills: Philadelphia could have nation’s highest tax on soda

By   /   June 15, 2016  /   News  /   No Comments

Walk into any pizza joint or cheese steak shop in Philadelphia, and the routine is pretty much the same.

Place your order, purchase an empty cup, fill it up at the soda fountain.  Grab a quick refill when you walk back up to the counter to pick up your food and another one before hitting the road.

Don’t feel guilty about it: free refills are one of life’s little joys.

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NO MORE REFILLS: A plan to add a new tax on soda and other sugary drinks in Philadelphia could bring an end to free refills. The Philadelphia City Council will meet Thursday to vote on the tax plan, which would impose a 1.5 cents-per-ounce tax.

But a plan to add a new tax on soda and other sugary drinks in Philadelphia could bring an end to those freebies.

The Philadelphia City Council will meet Thursday to vote on the tax plan, which would impose a 1.5 cents-per-ounce tax on soda, fruit punch, sweetened iced tea and juices that contain less than 50 percent real fruit.  The 1.5 cents-per-ounce tax would add about $1 to the price of a two-liter soda and more than $2 to the cost of a 12-pack of canned soda.

When it comes to soda fountains, though, things get a little more complicated.

Like in other cities, many of Philadelphia’s small downtown restaurants have self-serve soda fountains that allow customers to refill their cups.

Because of how the soda tax in structured, though, that might have to change.

Melissa Bova, a spokeswoman for the Pennsylvania Restaurant and Lodging Association, told Watchdog that the tax will be passed on to consumers in the form of higher drink prices. In places with self-service soda fountains, there might have to be other changes.

“At the end of the day, they’re probably going to have to asses a higher markup on the product,” Bova said. “Some will have to move the fountain behind the counter, which means losing kitchen space and potentially having to hire extra staffers.”

The city’s proposal would require the same 1.5 percent tax on the final product dispensed, but distributors and restaurant owners would be responsible for figuring out the details. That’s because not every machine uses the same ratio of syrup and carbonated water, though it’s usually about a six-to-one mix of syrup to water.

Distributors will be required to list the cost of the tax when restaurants purchase the syrup for soda fountains, which practically guarantees the final cost will be passed onto consumers in one form or another.

“Free refills would be uneconomical and would likely be terminated,” predicted Joel Naroff, an economist who does estimates for the American Beverage Association, in an op-ed for the Philadelphia Daily News. “Refills will likely be priced separately.”

Despite those complications, the city council is set to press ahead with the soda tax on Thursday.

This is not completely new territory – cities from Seattle to New York have pressed in recent years for similar taxes, and Philly has tried and failed twice to pass a soda tax – but Philadelphia might be the first major city to actually pass such a tax.

Mayor Jim Kenney has pushed the new tax by promising to use the revenue to fund pre-K programs across the city.

But that’s only half the story, literally.

An analysis by the Philadelphia Daily News found that only 49 percent of that tax revenue would fund pre-K, with the rest of the money divvied up between the city’s parks, economic development programs and disability benefits for city employees, among other things.

By the third year the tax is in place, about 30 percent of the revenue would flow to the city’s fund balance, meaning it could be used for almost anything.

Unlike other places where similar taxes have been defeated, Philadelphia has downplayed the potential health benefits of increasing the cost of a bottle of Coke, and instead focused on the potential for new revenue and the promise of citywide pre-K.

That’s a smart move politically. In other places, politicians have over-promised the potential health benefits of a soda tax and have seen those proposals crash once the soda lobby exposed those too-sunny projections.

The American Beverage Association says 29 cities have rejected soda taxes since 2008.

The only other city with a tax on soda is notoriously liberal Berkeley, California, which imposed a 1 cent-per-ounce tax last year. Early research indicates the tax has led to higher prices and reduced soda consumption.

Now, other cities might be looking at Philadelphia’s tax as a model for similar proposals – assuming it clears the city council on Thursday, as it is expected to.

This is a fabulous way to get revenue for revenue-starved cities,” New York University professor Marion Nestle, who has authored popular books on food and soda politics, told the Washington Post’s Wonkblog this week.

The Teamsters Union opposes the tax because it could adversely affect business for grocery truck drivers. But it is supported by many of the city’s powerful unions, including the Philadelphia Federation of Teachers, which stands to gain from an expansion of pre-K in the city’s schools.

But the soda tax might not be the best move, economically.

Critics of the tax, including Democratic presidential candidate Bernie Sanders, point out that it will fall most heavily on the city’s poor and will also hurt family owned restaurants and other small businesses.

More than 15,000 residents of the city and 1,500 businesses have signed onto a petition organized by a coalition of  interest groups opposing the tax. Even before Thursday’s vote, opponents of the measure are discussing possible legal action, or an appeal to the state legislature to invalidate it.

“Our feeling is, ‘lets look at funding options that everyone is paying, instead of just one industry,’” said Bova.

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Eric Boehm is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed listicle. Follow him on Twitter @EricBoehm87 and reach him at [email protected]