Why Soda Taxes Won't Work: Is The Obama Administration Listening?

by Pejman Yousefzadeh on April 3, 2010

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President Obama appears to be at least somewhat enamored of the idea of imposing a tax on sodas, presuming that such a tax will bring about significant health benefits:

The President, in an interview with Men’s Health magazine released yesterday, said he thought taxing soda and other sugary drinks is worth putting on the table as Congress debates health care reform.

“It’s an idea that we should be exploring,” the President said. “There’s no doubt that our kids drink way too much soda. And every study that’s been done about obesity shows that there is as high a correlation between increased soda consumption and obesity as just about anything else.”

Perhaps before taxing Diet Coke, however, the President will take note of this:

Taxes of a few percent on sugary drinks are unlikely to reduce consumption or improve children’s health noticeably, researchers have found.

Health, diet, lifestyle and demographic data from a large study population of schoolchildren indicated that each 1 percent increment in so-called soda taxes reduced kids’ mean body mass index (BMI) values by only 0.013 points, according to Roland Sturm of RAND Corp. in Santa Monica, Calif. and colleagues.

Effects on drink consumption overall and in school were also barely detectable.

“Small taxes in the range of existing differentials are unlikely to have visible effects at the population level,” the researchers wrote online in Health Affairs.

Now, to be fair, the researchers state that larger taxes–on the order of 18%–will bring about more significant effects. And they cite the proposed imposition of soda taxes in New York in 2008 as inspiration for the argument that large-scale soda taxes could bring about less soda consumption.

But New Yorkers rebelled against the imposition of an 18% soda tax, which meant that Governor Paterson had to abandon the idea. If President Obama wants to try to succeed where Paterson failed, he is welcome to make the effort, but does anyone really believe that after the brutal fight over health care reform, the Obama Administration is in the mood to fight to increase how much money one pays for one’s Diet Coke?

Perhaps readers think that politics aside, the economics of a soda tax are compelling. But I have my doubts:

Sturm and colleagues also found that small taxes had positive effects in certain subgroups, including African Americans, children already showing signs of excess weight, those from poorer households, and heavy TV watchers.

As a result, they suggested, taxes could still have a useful public health benefit.

But Sturm said their most important effect may simply be increasing revenue, which could be used to fund programs targeting childhood obesity and poor health behaviors.

This argument makes no sense. If taxes are being used to provide a deterrent against the purchase and consumption of soft drinks, then the reduced number of soft drinks purchased as a consequence of the imposition of the tax means that there will be correspondingly little revenue from soft drink purchases. If, on the other hand, revenue flows in like a mighty stream, it would seem to indicate that the imposition of the tax has had no effect in stemming soft drink purchases, and that perversely, the government will be profiting from the poor dietary habits of its citizens.

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