Soda Tax Set To Fizz Or Fizzle?

Would an extra tax influence your decision to avoid sodas and other sweetened beverages?

A new federal excise tax on most sugared beverages is currently being considered by the Senate Finance Committee. Taxed beverages would include most non-diet sodas, sports and energy drinks, with a three cent increase on each beverage tipped to generate around $24 billion in the next four years (Political Hotsheet, 2009). While some states already have small taxes on sugared beverages, the proposed taxes would be larger and more widespread.

Proponents for the new tax, such as Dr. Kelly Brownell and Thomas Frieden (the City health commissioner) argue that the introduction of a “soda tax” would be beneficial in a number of different ways (Brownell,Frieden, 2009). Firstly, by discouraging consumption of sodas, Brownell and Frieden suggest the tax alleviate some strain on the health care system by reducing risk of dental problems, obesity and obesity-related chronic diseases, such as diabetes and heart disease. Secondly, any revenue earned from the tax would contribute to the administration’s proposed $trillion-plus universal health care scheme.

It’s hard to deny that soda and other sugary drinks are linked to an increase in obesity in the contemporary US population (USA today, 2009; Vartanian et al., 2007). While this increase is caused by a myriad of inter-related factors, soda consumption stands out as a particularly obvious contributor. David Leonhardt, for the New York Times, recently reported that on average, each person in the US now consumes 190 calories a day from sugary drinks, more than 2.5 times the amount consumed in the late 1970s (Leonhardt, 2009). In addition to having a high (empty) calorie-count, soda consumption may reduce appetite control, and divert the consumer from more nutritious, healthful beverage options. Often, people concentrate on the caloric content of their food, ignoring the high-caloric contribution a sugary beverage may have on their daily calorie quota.

Similar “sin taxes” on tobacco and alcohol have been effective in reducing consumption of those products, and some economic research has found that soda drinkers are also persuaded by price. Obviously, larger soda manufacturers are quite resistant to the tax. However, they are not the only ones. (Nestle, 2009; Leonhardt, 2009)

Critics of the soda tax point out the flaw in the very economic principle on which the soda tax is based (in economic terms, a Pigovian tax – a tax which discourages detrimental activities, while raising revenue to fund their residual costs) (Tax.com, 2009). Prices are increased in the hopes that demand will decrease. While a dramatic decrease in soda consumption would be beneficial for general health, the decrease in sales would, in turn, lead to less collected tax revenue. On the other hand, if the tax is only moderate, so as not to impact sales and tax revenue, the first benefit of the tax is lost – consumers will still be drinking just as much soda, just at a slightly higher price.

Other difficulties may arise when trying to define “sugared beverages”. Whereas tobacco and alcohol are heavily-regulated and easy to identify, the term “sugared drinks” covers a much wider spectrum of products. While the current plans include non-diet sodas, energy and sports drinks, some nutritionists question the exclusion of exclusion of diet sodas, sugared teas or coffees, some flavored milks, or the euphemistically-named “vitamin waters” which may also have detrimental health effects. Would a soda tax encourage substitution of these drinks? Who decides what is “good” and what is “bad”? Where should the line be drawn? (Tax.com, 2009)

Large soda beverage companies argue that sodas shouldn’t be singled out, and some studies do show that taxes on sodas haven’t led to a significant decrease in obesity levels (Fletcher et al., 2007). Other critics argue that such a tax would be regressive – disproportionately affecting poorer demographics, who, on average, consume larger amounts of sugared beverages according to several studies (Tax.com, 2009; Tax History Project, 2009). Brownell and Frieden counter these arguments (Brownell, Frieden, 2009), pointing out that because they have the highest rate of soda consumption, poorer demographics would benefit most from possible reduction and a universal health care scheme. They acknowledge that the nation’s obesity epidemic is not due solely to excessive soda consumption, but that it is a great place to start combating the problem.

Some observers have suggested alternatives to a soda tax (Stuffed Nation, 2009). Instead of taxing the end product, some suggest a tax credit for beverage manufacturers who reduce the caloric content of their product. Others point out the hypocrisy of taxing a sugary beverage, which is made with government-subsidized high fructose corn syrup (HFCS). Perhaps any tax revenue raised could be allocated for media campaigns and education about healthier choices, thus reducing the problem in the first place. (Brownell, Frieden, 2009)

It is obvious that there are still many factors that need to be considered before a soda tax is enforced. The tax could either be designed to discourage consumption, or to raise revenue. The parameters of the taxed beverages need to be closely assessed, and some alternatives to the tax should perhaps be considered. While neither the obesity epidemic nor the costs of better health care in the US are problems that will easily be solved, they are at least no longer being ignored.

References

Brownell, Frieden (2009) Ounces of Prevention – The Public Policy Case for Taxes on Sugared Beverages. Viewed online June 30, 2009: http://content.nejm.org/cgi/content/extract/NEJMp0902392v1

Cardello, Stuffed Nation (2009) Why Soda Taxes Won’t Work. Viewed online June 30, 2009: http://207.56.179.67/stuffed_nation/2009/06/why-soda-taxes-wont-work.html

Fletcher, Frisvold & Tefft (2008) Can Soft Drink Taxes Reduce Population Weight? Viewed online June 30, 2009: http://www.economics.emory.edu/Working_Papers/wp/2008wp/Frisvold_08_08_paper.pdf

Leonhardt (2009) “Sodas a Tempting Tax Target”. Viewed online June 30, 2009: http://www.nytimes.com/2009/05/20/business/economy/20leonhardt.html

Nestle (2009) Food Politics. Viewed online June 30, 2009: http://www.foodpolitics.com/2009/05/the-temptation-of-soda-taxes/

Political Hotsheet (2009) Senate Considers Federal Tax On Soda. Viewed online June 30, 2009: http://www.cbsnews.com/blogs/2009/05/12/politics/politicalhotsheet/entry5009316.shtml

Tax.com (2009):

Soda Drinkers: They’re fat so they deserve it. Viewed online June 30, 2009: http://www.tax.com/taxcom/taxblog.nsf/Permalink/JTHE-7SNGCM?OpenDocument

Cheeseburgers, Fries, No Coke. Viewed online June 30, 2009: http://www.tax.com/taxcom/taxblog.nsf/Permalink/MSUN-7RZCNF?OpenDocument

Tax History Project (2009) News Analysis: Pop Goes the Soda Tax. Viewed online June 30, 2009: http://www.taxhistory.org/thp/readings.nsf/ArtWeb/186B22AE29FA8E15852575CA00439846?OpenDocument

USA today website (2009) Soda tax mulled as senators seek health overhaul money. Viewed online June 30, 2009: http://www.usatoday.com/news/health/weightloss/2009-06-14-drinktax_N.htm?POE=click-refer

Vartanian, Schwartz, Brownell (2007) Effects of Soft Drink Consumption on Nutrition and Health: A Systematic Review and Meta-Analysis. Viewed online June 30, 2009: http://www.ajph.org/cgi/content/abstract/97/4/667

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