In November 2014 Berkeley became the first city in the U.S. to pass a soda tax (San Francisco voters denied a similar measure), and there is scant evidence to show its policy has had any effect on the consumption of sugary drinks.
So why has this so-called “sin-tax” failed to live up to the hype?
It turns out that economists at Cornell University and the University of Iowa conducted a rigorous study of the Berkeley soda tax and found the expected price increases needed to curb consumption wanting (link).
Tax proponents expected the extra cost to result in higher prices for shoppers, which would discourage soda consumption. To date, however, consumers have been largely spared from higher prices, researchers found. On average, prices for beverages covered under the law rose by less than half the tax amount.
Instead of increased prices for consumers, the data shows many business owners have simply absorbed the tax themselves. From the Cornell-Iowa study:
The reason for this surprising result could be related to the fact that it’s a city tax and therefore store owners have to be concerned about the ability of consumers to shop at stores outside of Berkeley.
Without passing the soda tax on to customers, the added expense becomes simply another burden to be carried disproportionately by local small business owners, who are less able to swallow the tax. (link)
A scenario which longtime CRA member and founder of the Davis institution Dos Coyotes, Bobby Coyote, recently explained to The Sacramento Bee:
We’ve been hit with all these other taxes, and it costs us hundreds of thousands of dollars.
While a soda tax may be well-intentioned, there is simply no way to ensure within a competitive economy that the policy’s effects will reach its desired audience – leaving restaurants with another tax bill as consumers carry on with their behavior unchanged.