Issue Report: Soda Tax

Are soda taxes a good idea?

A soda tax or sugary drink tax is a tax designed to reduce consumption of drinks with added sugar. Drinks covered under a soda tax often include carbonated soft drinks, sports drinks, and energy drinks. The tax is a matter of substantial public debate in many countries, regions, and cities. Beverage producers such as Coca-Cola have generally opposed soda taxes. Advocates such as national medical associations and the World Health Organization promote the tax as an example of Pigovian taxation, aimed to discourage unhealthy diets and offset the growing costs (economic and social) of obesity. The main issues include whether: there is a health crisis that a soda tax can address; soda and sugary drinks contribute to health crises around the world; taxing soda can effectively reduce consumption; funding from a soda tax can meaningfully contribute to the economic health of a local government and help fund educational and health programs; a soda tax is regressive in that it may affect lower-income individuals to a greater extent; and whether a soda tax alone or a sugary-beverage tax is appropriate. Some of the cities in the United State that have adopted soda taxes include Seattle, San Francisco, Berkeley, Oakland, and Philadelphia. See the Wikipedia article on soda taxes for more basic background.

Health: Is a soda tax justified for health reasons?

A soda tax can help fight obesity and diabetes

World Health Organization

Dr Douglas Bettcher, Director of WHO’s Department for the Prevention of NCDs, said: “Consumption of free sugars, including products like sugary drinks, is a major factor in the global increase of people suffering from obesity and diabetes. If governments tax products like sugary drinks, they can reduce suffering and save lives. They can also cut healthcare costs and increase revenues to invest in health services.” The problem is sizable, as the WHO describes: “In 2014, more than 1 in 3 (39%) adults worldwide aged 18 years and older were overweight. Worldwide prevalence of obesity more than doubled between 1980 and 2014, with 11% of men and 15% of women (more than half a billion adults) being classified as obese. In addition, an estimated 42 million children aged under 5 years were overweight or obese in 2015, an increase of about 11 million during the past 15 years. Almost half (48%) of these children lived in Asia and 25% in Africa. The number of people living with diabetes has also been rising, from 108 million in 1980 to 422 million in 2014. The disease was directly responsible for 1.5 million deaths in 2012 alone.”

Sugary sodas are heavy in calories but fail to satisfy hunger

Dana Hunnes, senior dietitian at Ronald Reagan UCLA Medical Center: “They are really among the worst things we can drink. They are not only empty calories, but they also provide no beneficial nutrient intake whatsoever. If we drink 250 calories of soda, we may still eat the same amount in calories of food later. But if we eat 250 calories of food, we’ll probably eat 200 or 300 fewer calories later. The insulin response may in fact make us hungrier afterward.”

People who regularly drink soda are far more likely to be obese

According to research from the UCLA Center for Health Policy Research and the California Center for Public Health Advocacy, adults who drink one soda or more per day are 27% more likely to be obese.

Soda taxes do not necessarily improve health outcomes

A recent study by University of Massachusetts researchers:

“Proponents of soda taxes often reference the success of cigarette taxes in decreasing cigarette use. However, cigarettes and soda differ in a number of ways. First, cigarette taxes increase prices significantly, a tactic that may be unjustifiable for soft drinks given that, unlike cigarette use, moderate soda consumption is considered safe. Second, the many available soda substitutes may render soda taxes ineffective, in that consumers will replace highly-taxed beverages with low-tax alternatives with the same health consequences.” According to a 2012 Cornell University study, soda taxes prompted many consumers to switch to beer, and another study suggests that consumers may replace soda with other high-calorie alternatives.

Soda taxes adopt a nanny state philosophy toward the poor

Against the Soda Tax, Jacobin, June 21, 2016:

“Sugar-sweetened soft drinks are disproportionately consumed by the poor and people of color, making accusations of “nanny state” elitism impossible for proponents to avoid. Providing grist to critics, billionaire Michael Bloomberg — the former New York City mayor already known for his widely mocked attempt to ban “Big Gulps” in the Big Apple — contributed more than half a million dollars into Berkeley’s local soda tax election. Kenney decided to put a new spin on the soda surcharge when he proposed it in Philadelphia. Rather than pitching it as a way to ‘nudge’ the poor into drinking less soda, Kenney linked the tax to a popular progressive measure: universal pre-kindergarten.”

Consumption: Will a soda tax reduce consumption of sugary soda drinks?

Soda taxes effectively reduce consumption of sugary sodas

A 2016 report in the American Journal of Public Health found that low-income Berkeley neighborhoods slashed sugar-sweetened beverage consumption by more than one-fifth after the Northern California city enacted the nation’s first soda tax. Berkeley voters in 2014 levied a penny-per-ounce tax on soda and other sugary drinks to try to curb consumption and stem the rising tide of diabetes and obesity. After the tax took effect in March 2015, residents of two low-income neighborhoods reported drinking 21 percent less of all sugar-sweetened beverages and 26 percent less soda than they had the year before. The World Health Organization has also found: “Taxation of certain foods and drinks, particularly those high in saturated fats, trans fat, free sugars and/or salt appears promising, with existing evidence clearly showing that increases in the prices of such products reduces their consumption.”

Education has not reduced consumption, so a tax on soda is necessary

Dana Hunnes, a senior dietitian at Ronald Reagan UCLA Medical Center: “We know that education has mostly failed. Educating people to drink fewer sugar-sweetened beverages only works to a point. After that, taxation on an unhealthy product — along with putting those taxes toward public health programs — would help far more.”

Soda tax in Mexcico has effectively decreased consumption

Matt Phillips, "Mexico's completely sensible soda tax is working," Quartz, July 24, 2014:

“It might not be popular. But it’s working. Latin America’s largest Coca-Cola bottler, Coca-Cola Femsa, yesterday reported weak Mexican sales volumes, which slipped 2.8% during the quarter excluding the impact of mergers and acquisitions, as a new excise tax on soda ate into consumer demand for sugary drinks. Rival Arca Continental reported a similar sales slip in Mexico, as did Pepsi bottler Organizacion Cultiba. While soda makers might grumble, the decline of Mexican soda sales is rather good news.”

Local soda tax costs aren't passed to consumers, don't dissuade

"Study: Berkeley soda tax falls flat," Cornell Chronicle, August 17, 2015:

“A Cornell-University of Iowa analysis of a soda tax passed last fall by voters in Berkeley, California, the first such city ordinance in the country, found the measure so far has fizzled, raising retail prices for high-calorie sugary drinks by less than half the amount expected. The law, which took effect this March, imposes a penny-per-ounce tax on distributors of sugar-sweetened beverages, such as soft drinks, energy drinks and presweetened teas. Distributors pay 20 cents per 20-ounce bottle of Coke, for instance. 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 of the tax amount. For Coke and Pepsi, only 22 percent of the tax was passed on to consumers. The findings, by economists John Cawley of Cornell and David Frisvold of the University of Iowa, appear in the National Bureau of Economic Research working paper, “The Incidence of Taxes on Sugar-Sweetened Beverages: The Case of Berkeley, California,” published Aug. 17. “In light of the predictions of the proponents of the tax, as well as in light of the previous research, we expected to see the tax fully passed through to consumers,” said Cawley, professor of policy analysis and management and of economics in Cornell’s College of Human Ecology. “In contrast, we find that less than half, and in some cases, only a quarter of it is. This is important because the point of the tax was to make sugar-sweetened beverages more expensive so consumers would buy, and drink, less of them.” So-called “sin taxes” are designed to improve public health by discouraging people from purchasing unhealthy products. Smoking rates, for instance, have plummeted in the United States in recent decades partly due to federal, state and local taxes that have driven up cigarette costs. Berkeley officials hoped that the soda tax would raise prices and lead residents to avoid energy-dense sugar-sweetened beverages, considered a culprit for high rates of obesity and chronic disease. “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,” Cawley said. “Concerns about cross-border shopping could contribute to a low pass-through of the tax.””

Economics: Can the use of funding from a soda tax be beneficial?

Soda tax funding can support community programs

Yes for Seattle: Support the Soda Tax in Seattle

“A tax on sugary and artificially-sweetened drinks would provide funding for community programs that promote education, health and nutrition across our city and put important resources towards low income and vulnerable populations that need them the most.”

Emily Dugdale, “Soda tax brings needed cash to gardening program,” Nosh, 2015: “The Berkeley Unified School District’s beleaguered cooking and gardening program will see a welcome injection of funds as a result of revenues accrued from Measure D, the so-called soda tax, approved by city residents last November. On Thursday, June 4, a panel appointed to allocate taxes collected from the sugar-sweetened beverage tax recommended $250,000 be advanced to the cooking and gardening program.”

Soda tax funding can support education

Revenue generated by Seattle’s Soda tax is being put toward supporting education. And expected $15 million in revenue per year generated from the program would be split between education and health programs.

Soda tax funding can support health programs

Sally Kuzemchak, "Why I support a soda tax,", October 3, 2017:

“The money could be put to good use. Money raised from soda taxes could be directed toward programs that make people’s lives healthier. According to the Center for Science in the Public Interest, a federal tax of just one cent for every 12 ounces of soda would raise $1.5 billion a year. That money could be put toward healthier school meals, community playgrounds and gardens, and programs to counter the obesity epidemic.”

Majority of Americans back soda tax to fund education, health

A majority of Americans support taxing sugary drinks to fund preschool and children’s health programs, a poll from POLITICO and the Harvard T.H. Chan School of Public Health found.

Soda taxes unwisely tax a narrow base for large health programs

"The case against soda taxes," Tax Foundation, March 15, 2017:

“A shrinking, regressive tax base for education. Besides being depicted as a way to improve public health, soda taxes are also now being looked at as a way to shore up state and local budgets and expand important services such as education. Although it might be more politically expedient to tax a demonized product like soda to pay for popular services, this represents bad fiscal policy. Ideally, public services should be funded by taxes with a broad base and low rate. Soda taxes are the opposite, subjecting a narrow tax base to very high tax rates.”

Revenue will decline as consumers are already shifting from soda

"The case against soda taxes," Tax Foundation, March 15, 2017:

“Policymakers should also be aware that soda consumption has already been steadily declining. Enacting a tax on a product with this consumption pattern might result in a temporary spike in revenue, but will soon be followed by a revenue decline as consumers continue shifting their spending habits. Policymakers will face a budget gap from expanding services with a narrowing tax base that doesn’t fill the void.”

Soda taxes cost jobs

"The case against soda taxes," Tax Foundation, March 15, 2017:

“What’s also been lost in the soda tax kerfuffle is the potential job losses, as we’re starting to see in Philadelphia. Retailers, distributors, and restaurants are all bound to be affected, either through smaller profit margins or reduced sales. One beverage company, Pepsi, announced layoffs related to the Philadelphia tax.”

Regressive : Is a soda tax not regressive?

Soda tax not regressive, improves health & investments in poor areas

George Matyski, "Why the soda tax is not the real regressive," The Inquirer, 2016:

“There is a common pejorative buzzword lingering around the soda tax: regressive. But to see the true definition of regressive, look no further than Philadelphia’s health and economic indicators for our city’s children, which would be positively impacted by the soda tax. The real regressive is one in three children in Philadelphia living in poverty. The real regressive is a childhood overweight and obesity rate of 46.9 percent, with some low-income communities close to 70 percent. The real regressive is a city that has underfunded community infrastructure, and quality pre-K, in the areas where it’s needed most. High poverty, high obesity, and high neglect – a triumvirate of obstacles faces many children born in Philadelphia today. But through Mayor Kenney’s budget proposal, our city has a cleared a potential pathway around these obstacles. First, by reducing sugary drink consumption, city residents will see a marked improvement in health outcomes. A Harvard University study published last week showed an annual reduction of 2,300 diabetes diagnoses and an average decline of 73 deaths. We’d likely see a particular drop in areas like North Central Philadelphia, where childhood overweight and obesity affects nearly seven of 10 children. Second, to reinforce these health outcomes, the city would invest in the public spaces that encourage exercise – namely investing in Philadelphia’s parks and recreation facilities. For decades, Philadelphia’s public spaces have seen sporadic private investment, often creating greater disparity between communities with inherent wealth and those that lack the resources. By investing in the areas and facilities of greatest need, the city can begin to level the playing field by investing in playing fields.”

A soda tax is regressive

"The Case Against Soda Taxes," Tax Foundation, March 15, 2017

“Soda taxes are regressive. First, let’s remember that these taxes are regressive. My colleague Scott Drenkard wrote in 2012 that a 10 percent soda tax could burden high-income families by $24.29, while poor families would be harmed nearly twice that amount at $47.38. Proponents sometimes justify this feature of the tax by arguing that it is fine to overtax low-income individuals, as revenue from this tax goes to government services that are enjoyed more by those same low-income individuals. This is poor reasoning, though. If this argument were valid, it could be used to justify any regressive tax imaginable, as government spending as a whole is progressive, benefiting lower-income individuals more than high-income individuals as a percent of their income.”

A soda tax ignores higher-class sugary drinks

Against the Soda Tax, Jacobin, June 21, 2016:

“Thanks to the inherent regressivity of any sales tax and the demographics of soft drink consumption, the soda tax hits the poor hardest. Even the ubiquitous use of a “soda tax” as the shorthand for a fee on sugary beverages hints at the tax’s unfairness. While low-income people’s fizzy drinks are getting socked with taxes, most of the sugar-laden beverages favored by the upper middle-class and the rich are conspicuously exempt. In Philadelphia, drinks that are at least 50 percent juice are excluded from the 1.5-cent-per-ounce fee. The bottled smoothies that line Whole Foods’ shelves? Tax-free, even when they contain more sugar than a Pepsi. Beverages that are more than 50 percent milk are also exempt, a loophole big enough to drive a tanker truck full of venti white-chocolate mochas through.”

Soda vs. Sugar: Is taxing soda better than taxing sugar generally?

Taxing sugar, not soda, addresses the real harm

Caitlin Dewey, "The case for taxing sugar, not soda," Washington Post, December 13, 2016

“economists say there is a very simple way to more effectively reduce sugar and sweetener intake. In a nutshell, don’t tax the soda — tax the sugar it contains. According to a new research report by the Urban Institute, such an approach would reduce both sugar consumption and consumer burden more than the volume taxes — which tax beverages by the fluid ounce — that are favored by cities and counties across the United States. What’s more, they might also encourage manufacturers to reformulate some high-sugar beverages.”