Question

Nearly all of Seattle’s soda tax is being passed on to consumers, new report shows

Stores across the city have passed on the cost of Seattle’s soda tax to consumers, a new study shows. (Ken Lambert / The Seattle Times)

The city collected nearly $17 million in the first nine months of the tax — and officials are counting on the money to keep rolling in.

By Daniel Beekman (Links to an external site.)Links to an external site.

Seattle Times staff reporter

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

But some taxed beverages have increased in price more than others and some stores have increased their prices more than others, according to the report (Links to an external site.)Links to an external site. by University of Washington researchers that City Council members are set to discuss Wednesday.

Sodas have increased in price more than sugar-sweetened juices and bottled coffee drinks, and smaller stores have increased their prices more than supermarkets, the report indicates (Links to an external site.)Links to an external site..

Additionally, some smaller stores have increased their prices even for beverages not subject to the tax, such as diet sodas.

“We don’t know why, but they did see something similar in Berkeley,” the California city that adopted a tax before Seattle, said research-team leader Jesse Jones-Smith, an associate professor of health services and epidemiology.

Seattle’s tax of 1.75 cents per fluid ounce, which took effect in January 2018 (Links to an external site.)Links to an external site., 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.

When the City Council approved the tax in 2017, many proponents said the goal was to decrease consumption of unhealthful beverages by driving up prices, while others supported the policy because they said it would raise money for healthful-eating and education programs.

Foes said the tax would disproportionately hurt people with low incomes. Some store owners and consumers opposed the measure, along with unionized beverage-industry workers.

The city collected nearly $17 million (Links to an external site.)Links to an external site. in the first nine months of the tax, surpassing its initial expectations, and officials now are counting on the money to keep rolling in, with substantial annual declines no longer anticipated (Links to an external site.)Links to an external site..

The UW researchers surveyed prices for various beverage types at more than 200 Seattle stores of various types in fall 2017, before the tax, and in summer 2018, after the tax.

To isolate the impact of the tax, they used more than 200 stores in Kent, Auburn and Federal Way as a control group.

Across all beverages and Seattle stores surveyed, an average of 1.70 cents per fluid ounce — or 97 percent of the tax of 1.75 cents per ounce — was passed on to consumers, according to the study.

For soda, the average pass-through rate was 102 percent, and for sugar-sweetened teas and sports drinks, it was 84 percent.

For sugar-sweetened juice drinks, it was only 63 percent, and for sugar-sweetened bottled coffee drinks, it was 62 percent.

At small stores, the pass-through rate was 104 percent, while at supermarkets and superstores, it was only 86 percent.

The researchers have some guesses about why the tax impacted different beverages and stores differently, but the report doesn’t include explanations.

“The most important finding is that in the large grocery stores most of the tax is being passed through,” Jones-Smith said.

At small stores, the average pass-through rate for non-taxed beverages such as diet soda and chocolate milk was 44 percent, while at supermarkets and superstores, it was 0 percent.

The researchers didn’t survey some popular stores that devote little shelf space to sugary beverages, such as Whole Foods, Trader Joe’s and PCC Community Markets.

The UW team also is studying attitudes toward the tax, impacts on sales and changes in consumption by low-income children.

State voters recently (Links to an external site.)Links to an external site. approved a ballot measure meant to block other Washington cities from also enacting soda taxes.

Daniel Beekman: 206-464-2164 or [email protected]; on Twitter: @dbeekman (Links to an external site.)Links to an external site.. Seattle Times staff reporter Daniel Beekman covers Seattle city government and local politics.

Briefly explain what the city council failed to understand. Who ends up paying the tax? Was this the intent? The city council doesn't understand what economic concept? Explain.

Answer 1

Among the key findings:

Supermarkets and superstores only passed through 86 percent of the increased costs, while smaller grocery stores, drug stores and shops passed on more than 100 percent of costs.

The average pass-through rate varied, from 62 percent for bottled sugary beverages such as fruit juice to 111 percent for energy drinks. The average pass-through rate for soda was 102 percent.

Diet and other drinks that were not subject to the soda tax increased significantly (up to 44 percent of the price of the tax in some stores).

Taxes targeting specific products and services can complicate tax compliance. here there’s a statewide tax on sweetened beverages, retailers sometimes have to read ingredients to determine whether tax should apply. Months after the tax took effect, there was still widespread confusion over which drinks were and were not subject to the special tax.

The consumers ended up paying the tax and it affected people with lower income group.

The intent was to lower unhealthy sugar intake among consumers.

But the council failed to understand the concept of elasticity. If it is an inelastic demand, thus meant that poeple would still buy it irrespective of the price hike.