District Quietly Increases Tax On Sodas And Sugary Drinks

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A new tax on sodas and sugary drinks goes into effect in D.C. Tuesday, though unlike other similar rules across the country, this one was adopted with little fanfare and very little debate.

Sodas and drinks with natural or artificial sweeteners that contain less than 100% juice or at least 50% milk purchased in local stores are now subject to an 8% sales tax, a two-percentage-point increase from the city's standard 6% sales tax.

"We did this primarily to fund very important nutrition programs, particularly those for poor children," says D.C. Council member Mary Cheh (D-Ward 3), who inserted the provision into the city's $15.5 billion 2020 budget, which takes effect Tuesday. "But in addition, we're hoping that it may signal sufficiently to discourage purchase of soda and sugary drinks and have people choose water or something that is healthier."

The annual revenue from the tax — just over $3.2 million per year — will help cover the cost of a new program that allows certain residents with a doctor's prescription to get a $20 voucher for fruits and vegetables at participating supermarkets, as well as to expand the program that offers free breakfasts to low-income kids at schools and recreation centers.

While, in effect, a new tax on sodas and sugary drinks, Cheh's measure is not exactly the same as the "soda taxes" proposed across the country that have drawn stiff opposition from soda producers. Those are traditionally excise taxes, or a tax levied on the purchase of a specific good. In Philadelphia, for example, a soda tax that was implemented in 2017 added 1.5 cents to the cost of every ounce of soda sold, which showed up directly on the drink's price tag.

The new higher tax in D.C., on the other hand, only will be applied after the soda or sugary drink is rung up at the register.

Other cities that have imposed a traditional soda tax include Berkeley, California; San Francisco; Boulder, Colorado; and Seattle. Cheh attempted a soda tax of her own in 2010, but it failed to move forward after soda producers pushed aggressively to kill it.

This time around, opposition to Cheh's proposed tax hike was limited by the fact that she proposed it as part of the city's budget, not as a stand-alone bill that would require a public hearing. And that bothered some of her colleagues, who argued that any such tax increase should go through the normal legislative process.

"I ... have been a champion for improving the health and wellness of District residents. However, raising taxes on some of the District's most vulnerable residents is a policy decision that should be made in a more transparent manner and with input from those most impacted," Council member Kenyan McDuffie (D-Ward 5) said in May.

That point was echoed by Ellen Valentino, a representative for the D.C. Beverage Association, the local chapter of the American Beverage Association (ABA), which represents producers like Coca-Cola and PepsiCo.

"Increasing and expanding the District of Columbia's existing sales tax on everyday beverages like teas, coffee and juice drinks only hurts local retailers and working families who are already facing a high cost of living in the District," she says.

The ABA also says on its website that higher taxes on sodas and other beverages are regressive. "The fact is taxes won't make people healthier, just poorer," it says.

But a report published earlier this year by the University of California at Berkeley found that the new soda tax in that city led to a 52% decrease in consumption of sugary drinks.

Cheh concedes that a sales tax increase inserted into the budget was an easier fight to win than pushing for a higher excise tax on sodas, but she says that idea may rise again.

"That would have been a much bigger lift, and I wanted to do what I could now. Who knows what the future holds on [a soda tax]. It may be time to revisit that. But at least for this purpose, I wanted to have a source of money for these really important nutrition programs," she says.

The 2020 budget that takes effect Tuesday also includes a sales-tax exemption for diapers and an increase in the Schedule H tax credit, which offers assistance to low-income homeowners and renters. It also raises taxes on the sale of certain commercial properties, with the resulting revenue going to pay for affordable housing programs.