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April 17, 2013 Ms. Samantha Lui Sen. Governance and Finance Committee State Capitol, RM 408 Sacramento, CA Re: Sugar-sweetened Beverage Tax Impact on Employment in California Dear Ms. Lui, Sugar-sweetened beverages (SSBs) are associated with poor health outcomes including obesity. Evidence suggests that a tax that would raise the price of SSBs by 20% would reduce consumption by 24% and raise substantial funding for obesity prevention programs. While SSB taxes have been proposed by many state legislatures including in California as a means to reduce SSB consumption and improve public health, the beverage industry has strongly lobbied against such taxes. A primary argument used by industry against SSB taxes is that they will cause considerable regional job losses. Although the industry’s jobs argument has resonated with citizens and lawmakers, especially during the recent recession, industry-sponsored research supporting it is subject to several limitations in its methods and assumptions. First, job losses within the beverage industry are overstated by not fully accounting for partiallyoffsetting increased consumption of non-SSBs, often produced by the same companies. Second, the increases in jobs created elsewhere in the economy as consumers reallocate their spending towards non-beverage goods and services are ignored. Finally, it does not account for the economic activity generated by the tax revenue. Our recent research undertaken at the University of Illinois at Chicago used the Regional Economic Models, Inc. macroeconomic simulation model to comprehensively assess the employment impact accounting for changes in factor input demand and multiplier effects across state-level economies as consumers, firms, and governments re-allocate their spending in response to changes in consumption induced by the introduction of a 20% SSB tax (which is assumed to be fully passed on to consumers without industry subversion by changing its wholesale prices) in California. That is, the net rather than gross employment effect was assessed by accounting for changes in SSB demand, substitution to non-SSBs, income effects, and government expenditures of tax revenues. Results from this non-industry sponsored research estimate that the net impact of a 20% SSB tax revealed increased employment of approximately 6,000 jobs in California, representing about a 0.03% change in employment. Declines in employment within the beverage industry of approximately 2000 jobs occurred but were offset by larger new employment in non-beverage industry and government sectors. Therefore, SSB taxes would have a negligible though slightly positive net impact on overall state-level employment in California. Yours Sincerely, Lisa M. Powell, PhD, University of Illinois at Chicago Roy Wada, PhD, University of Illinois at Chicago Joseph J. Persky, PhD, University of Illinois at Chicago Frank J. Chaloupka, PhD, University of Illinois at Chicago
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