Category Archives: soda

Against the Soda Tax

awesome depth of field courtesy of Stephane Pompougnac http://www.flickr.com/photos/vox_efx/3063389109/

Although many states already tax soda (usually a fraction of a penny per ounce), a recent article in the New England Journal of Medicine on the potential benefits of a $0.01 per ounce tax on "soft drinks, energy drinks, sports beverages, and many juices and ice teas" has re-ignited the debate about whether or not we need a national soda tax. Back in July, Obama said a sin tax on soda was "an idea we should be exploring" in an interview with Men’s Health although in the recent panic about industry profits and personal liberties, the White House has been quick to note that they haven’t yet and have no plans to propose anything like it. 

Most people probably already know how the two sides shake out: promoters argue that soda makes people fat (which allegedly makes people sick and thus incurs social costs) so the tax would have the dual benefit of reducing the costs associated with obesity and generating money that would help cover health care costs (or balance state budgets). Opponents argue that soda isn’t morally distinct from many other elective behaviors that sometimes (but not always) contribute to disease and health care costs, and as soda consumption is inversely correlated with income, taxing it would disproportionately burden those least able to pay.

All of those are actually pretty complicated claims, some of which I’ll try to unpack below the jump but here’s the short version: even promoters admit that the tax isn’t likely to meaningfully reduce obesity or the diseases associated with it (note: not caused by it, as there’s still no reliable evidence that fatness causes any disease besides osteoarthritis, and anyone who wants to hear more about that should consult Paul CamposThe Obesity Myth, J. Eric Oliver’s Fat Politics, Glen Gaesser’s Big Fat Lies, and/or Michael Gard and Jan Wright’s The Obesity Epidemic). That means the only real argument in favor of the tax is that it would raise money. But everyone agrees that it would be a regressive tax. So unless you think that collective costs like state budget deficits and health care reform should be disproportionately shouldered by the poorest citizens, there is no good reason to support the soda tax (and this goes double for ill-considered suggestions that we just axe corn subsidies instead—also after the jump).

1. Even advocates claim the tax would only lower demand modestly. According to a study that hasn’t been published yet (referenced in the New England Journal of Medicine article) the price elasticity of soda is –0.8 to 1.0, meaning if the price of soda is increased by 10%, consumption should decrease by 8-10%. The $0.01 per ounce tax would actually increase the cost of a 20 oz soda about 20% (unless you’re buying it at a sporting event), so presumably it should decrease consumption by up to 20%. I’m a little skeptical about that, and am looking forward to seeing how they determined its price elasticity, but I sort of doubt that soda is "unit elastic" meaning the percent change in demand will always be approximately equal to the percent change in price. Unit elasticity usually relies on the assumption that a good is readily replaceable—perhaps they assumed that tap water serves all the same dietary, social, and psychological functions as soda? Or that regular soda drinkers will switch to diet if there’s a $0.15 to $0.20 incentive? Nonetheless, their simultaneous insistence that this tax would address state budget problems or fund health care in any meaningful way is predicated on the fact that it’s not likely to decrease demand significantly. Most soda consumers will be more than willing to pay another dime per can of soda.

2. Although sugary drinks have probably contributed to the relatively small average weight gain over the past few decades, no one really thinks soda alone is what’s making people fat. Even for people who might reduce their soda consumption as the result of a sin tax, The New England Journal of Medicine estimates (conservatively by their own admission) that people would probably compensate for an average of 25% of the lost calories by eating or drinking more of something else. If people rely on soda as a source of a "sugar buzz" or have what might be called an "addiction" to sugar, it seems likely that they would compensate with other sugars. Some might substitute with diet soda, but it’s worth noting that longitudinal studies suggest that people who drink diet sodas actually have a greater chance of being obese than people who drink regular sodas. The causal arrow is almost certainly obesity—>drinking diet soda and not the other way around, but if drinkers of diet soda are more likely to become obese than drinkers of regular soda, that certainly challenges the notion that soda is a necessary cause of obesity. The relationship certainly isn’t as linear as the relationship between cigarettes and smoking, which it’s often compared to. And proposed "twinkie taxes" that would levy other calorie-dense, low-satiety and vitamin-poor foods haven’t gained any political traction because just like soda, it’s possible to consume things like frappucinos, Doritos, Wonderbread, instant ramen, or "fast food" remain non-obese. Plus, unlike soda, each of those does contain nutrients generally recognized as desirable. Despite all the cultural stigma and personal shame associated with some "sinful" foods, the healthfulness and morality of most things we eat and drink turns out to be a little too tricky to legislate.

3. The idea that this tax would be limited to "sugary" drinks is almost certainly not going to work in practice. Restaurants and gas stations aren’t going to start charging a different price for their diet soda and unsweetened iced tea than they do for their regular soda and sweetened iced tea, especially when they have self-service soda fountains. While there’s actually nothing more objectionable about taxing unsweetened iced tea or diet soda than regular soda (less, probably, if the former are more likely to be consumed by wealthier people), there’s a good reason the supporters of the tax aren’t calling for it: there’s no moral defense of a tax on soda water or unsweetened iced tea. No one thinks plain soda water makes people fat or causes disease (okay, I’m sure someone somewhere does, but they probably also think crystals heal people and agave nectar is "natural" and microwaves communicate your private personal information to the aliens who abducted Kennedy). 

Some people, even those who are opposed to the tax like Katherine Mangu-Ward of Reason.com, have suggested that we could just eliminate corn subsidies instead. Mangu-Ward notes that the projected annual revenues from the soda tax are, coincidentally, just about equal to the subsidies we pay to corn farmers. Joe Weisenthal makes a similar suggestion over at The Business Insider.

The first problem with this idea is that, as I’ve mentioned before, the farm cost of the corn in soda is only 1.6% of the price. Less than 2 pennies of a $1.20 bottle of soda go to the farmers who grow the corn that becomes high fructose corn syrup. Even if the elimination of the subsidies doubled the price of HFCS, the cost of soda would only go up a cent or two.

The second problem is that not all subsidized corn becomes HFCS. Less than 12%, according to the National Corn Growers Association. Most of it, as anyone who’s seen King Corn or read Michael Pollan knows, is used to feed livestock (how much exactly is a little unclear; I’ve seen a number of claims that eighty percent of all corn grown in the U.S. is consumed by domestic and overseas livestock, poultry, and fish production, but those may be outdated because of the rise of ethanol. Still, the most recent stats I could find on the NCGA website claim that 42 percent of U.S.-grown corn is fed to domestic livestock. The upshot: a substantially larger part of corn subsidies go towards feedlot beef than soda).

Rather than having a comparable effect as taxing soda, Mangu-Ward’s plan is far more akin to a tax on feedlot beef. And that, more even than the power of corn growers, is what would make it politically impossible. Weisenthal mysteriously suggests that it would be politically easier to eliminate "any subsidies that go towards high-fructose corn syrup," as if the industry behind the most-produced crop in the country and all the industries that rely on it have less clout than the "soda industry."

For the record, I’m not opposed to higher beef prices on any moral or economic  or even nutritional grounds. I’m not convinced that corn-fed beef is a necessary part of a healthy diet (although nor am I convinced that it’s necessarily unhealthy either, as the effects of dietary saturated fat and cholesterol seem highly dependent on what else you eat them with), and I suspect that the mass production of cheap meat might contribute to a number of environmental and social ills. I am all for reforming the seemingly-outdated system of agricultural subsidies that encourages certain kinds of farming and discourages other ones, but honestly, I don’t know exactly what that reformed system should look like. And I doubt Mangu-Ward or Weisenthal do either. I suspect that simply eliminating subsidies for the commodity grown in the largest quantities is not the best way. And in any case, it wouldn’t increase the cost of soda, fund health care, or fix state budget crises. As ever, not all simple answers are best.