So the federal soda tax is coming or not? And is it a good idea?
Will Saletan on the plan to change behavior by taxing soda.
Think about the case for taxing income, via the income tax and FICA. Why do it? Well, to get the money. That’s how we finance Social Security, the Department of Defense, Medicare, interest payments on the national debt, Medicaid, federal aid to schools, veterans’ health care and benefits, the FBI, etc. Now what’s the case against taxing people’s income? Well, it’s that it discourages work and it discourages investment. And that’s bad for the economy. Now we go back and forth over whether any given expenditure has a value that outweighs the economic costs. Liberals, like me, tend to think that a relatively high level of expenditure is justified whereas folks on the right tend to disagree.
But what if we could raise some revenue by taxing something else? Like, say, cigarettes. Or soda. Or booze. Well, then the case for doing the taxing remains similar—you can fund useful programs with it. But the case against looks a lot weaker, since reducing consumption of cigarettes or soda is not so bad. You introducing a little bit of allocative distortion into the economy, but not a huge amount, and you’re improving public health which is going to be beneficial.
Kevin Drum argues we should tax the sugars and the syrup, not the soda.
Soda consumption has changed — a lot. The typical person now consumes 190 calories a day from sugary drinks, up from 70 a day in the late 1970s. That 120-calorie increase represents about one-half of the total daily caloric increase during that span, C.D.C. data shows.
Of all foods and beverages, says Mr. Brownell, the obesity researcher, “the science is most robust and most convincing on the link between soft drinks and negative health outcomes.”
Just as important for the purposes of a soda tax, economic research has found that soda drinkers are price sensitive. In the past, when the price of soda has risen by 10 percent, consumption has dropped by an average of roughly 8 percent. This means a soda tax may not be quite as regressive as it sounds, because poor people would end up buying less soda than they now do.
I found these arguments fairly compelling, and I wanted to hear how executives at Coke and Pepsi would respond. But they refused to talk.
Leaving aside the question of whether a soda tax would have a significant impact on total calorie intake, there are a couple of problems with Leonhardt’s reasoning. First, smoking and overeating (unlike, say, air or water pollution) do not inherently “place a cost on the rest of society”; if taxpayers pick up the tab for the treatment of smoking- or obesity-related diseases, that is only because the government forces them to do so. Second, even if government-funded health care is taken for granted, both smoking and overeating actually seem to save taxpayers money. A 2008 Dutch study, for example, found that thin nonsmokers generate higher lifetime medical costs than obese people or smokers do because they tend to live longer.
I am skeptical, because the author ignores the possibility of substituting untaxed sugar-sweetened foods or beverages. People who crave sugar will find no dearth of substitutes for sugar-sweetened sodas. Moreover, most consumers of these sodas are not and never will be obese. They may well be overweight, but all that that means is that they are heavier than the “ideal” weight calculated by physicians; if they are only slightly or even moderately heavier, the consequences for health or social or professional success are apparently slight.
To the extent that a soda tax would cause substitution of equally sugared foods, it would not only have no effect on obesity; it would yield no revenue–a material consideration because supporters of the tax hope, albeit inconsistently, that it will both reduce obesity significantly and contribute significantly to financing the Administration’s ambitious and very costly program of health-care reform.
They also claim that a review of various studies indicates that a 10% increase in the price of beverages reduces consumption by about 8%. These assumptions imply that a tax on beverages that increases its price by 10%-that means a 10 cent tax on a can of soda that sells for about $1.00- would slightly reduce the intake of calories from sodas by 0.8% to 1.2%. Even this overstates the total effect on calorie consumption, given that consumers who like sugar would substitute toward cakes, candies, and fruit drinks that naturally have lots of sugar. The result of this tax on beverages would be at most a very small reduction in the intake of calories and sugar.
Derek Thompson, however, argues the other way:
But for whatever reason, I’m feeling even giddier about sin taxes. I think we could also raise taxes on legal “sinful” products (cigarettes, soda, beer, etc) to further prime government revenue. I see the government is already considering this, having estimating that a mere 3 cent tax per 12-ounce serving of soda could generate $24 billion in four years. That’s not going to pay for health care, but it’s a not-insignificant amount money that seems to have addition social benefits.
UPDATE: Free Exchange at The Economist
UPDATE #2: David Gratzer
UPDATE #3: Ezra Klein
Tim Mak at New Majority
UPDATE #4: Marc Ambinder
UPDATE #5: Karen Kaplan at the LA Times
Veronique de Rugy at NRO
UPDATE #6: More Yglesias
Matthew Schmitz at The League
Mark Thompson at The League
Rufus F. at The League