The Soda Tax: Propaganda and Politics

There’s a new commercial going around that decries government “food” taxes. In an apparent effort to appeal to libertarians, a woman declares she doesn’t need the government telling her how she should feed her family. But the “foods” she enumerates are “soft drinks, juice drinks, sports drinks – even flavored water!”  That is to say, she wants to buy sugary, nutrition-less drinks with major links to obesity and obesity-related health problems like high cholesterol, heart disease, and diabetes. 


I thought the anti-big-government tenor of this commercial meant it was only airing on Fox News, but recently heard reports of it being seen on CNN and MSNBC.  Learning that this propaganda is widespread motivated me to address why it’s so totally misinformed, and make my best argument for why soda taxes are a good idea.

First, despite the seeming Tea-Party-esque rhetoric of the commercial, most Republicans favor consumption-based taxes. What conservatives dislike are income-related taxes. For example, proponents of the Republican-driven Fair Tax favor high sales taxes in exchange for low (or no) income tax.

One type of sales tax is a sumptuary tax, commonly called a “sin” tax, which is a tax on items the government has a policy reason for discouraging you from buying – like cigarettes.  Sin taxes serve dual purposes of benefiting the public welfare and raising revenue, so they tend to be a great, agreeable compromises between just about everyone.  Except, of course, the people who make the taxed goods.  And that's precisely where these ridiculous, fear-mongering commercials come from: they're funded by “Americans Against Food Taxes,” a front group for the soda industry.

Facing insanely, embarrassingly high rates of obesity (in 2009, 72 million people – three out of ten adults – were medically classified as “obese”), and rising health care costs associated with obesity, a few states have proposed placing high taxes on foods with little to no redeeming nutritional value and high sugar content. In 2008, New York Governor David Paterson suggested an 18% tax on sugary drinks, including sweetened juices with less than 70% juice.  But Paterson was immediately met with backlash from the American Beverage Association, including protests by bottling plant employees, and the creation of aforementioned Americans Against Food Taxes.  PepsiCo even threatened to move their corporate headquarters out of New York if Paterson persisted.

So in 2010, Patterson proposed a more modest tax: an excise tax of just one penny per ounce only on sodas, no juices at all.  The Governor estimates this would raise $450 million for the city’s health care budget in its first year alone.  But even his new proposal has been met with intense opposition.  The beverage industry's newest argument is that the tax will disproportionately affect low-income and minority buyers, citing a study that low income consumers are more than twice as likely to drink soda.
A Yale professor named Kelly D. Brownell (along with every other scientist ever [uncited hyperbole]) debunked these beverage-industry-sponsored studies. Further, his studies pointed out a whole bunch of "market failures" that strongly support the soda tax, including the disparity of short-term gratification versus long-term harm, the misinformation propagated by the beverage industry, and the fact that the health system as a whole is forced to absorb the costs of soda-related obesity.

To combat these public health externalities, Brownell suggested exactly the same tax Paterson has proposed – a one-cent per ounce excise tax on sodas.  A soda tax would not disproportionately disadvantage the poor, he argues, because the poor experience the brunt of obesity-related diseases.   If anything, such a tax could benefit the poor by saving them money (a free beverage source – water – is readily available), and preventing disease.

According to the plethora of studies out there, even reducing caloric intake by a few percentage points a year could mean meaningful reductions in health care spending.  Thus, if implemented, the soda tax would have a short term economic benefit of revenue, a long term economic benefit of decreasing health care costs, and a warm-and-fuzzy benefit of improving public welfare and reducing obesity.  The only downside: to stay afloat, Pepsi is just going to have to buy more fast food chains.

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Matt!
AUTHOR
February 11, 2011 at 8:38 AM delete

I think it's a good idea, too, although I'm generally opposed to consumption taxes because they are so regressive. But, I am also in favor of the idea of using tax policy to encourage or discourage behavior that impacts the public welfare.

I have always been very skeptical of that "fair tax," however. It seems to me that a high nationwide sales tax would just punish the poor for having to buy anything.

As a self-employed individual who makes almost nothing, and still has to pay obscene amounts of taxes in large lump sums, I'm the first to agree with anyone who says our taxes are too high. In my mind, the solution is not necessarily to cut them, but to make better use of them. I pay 8 cents on every dollar I spend in Atlanta so they can...cut MARTA routes. Those huge checks I'm sending to the IRS that eat a fifth of my (believe me) already paltry income? Funding state-of-the-art military equipment that we use to combat guys who are hiding in caves, in useless wars that nobody thinks are working.

I would gladly pay even the high tax rates that you get in countries like Canada, Australia, and European democracies, if it guaranteed healthcare, a good education, and efficient mass transit.

Just a nit to pick on your great blog. Of course, water is not a "free beverage," most people, especially in urban areas, have to pay a water/sewer bill, or at least a surcharge to their landlords. (I think you're paraphrasing Brownell there, though?)

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Cody
AUTHOR
February 11, 2011 at 9:06 AM delete

Just saying, a penny per ounce is a $1.44 increase on a 12 pack that costs, what, five bucks? And yes I'm drinking a coke zero right now. And there's a Coca-Cola ad below this comment box.

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Scott
AUTHOR
February 11, 2011 at 3:50 PM delete

Two things. First, I am a republican, and I don't support the FairTax. Most of us don't, I think it's a pretty fringe platform.

Second, I am hugely disappointed in the overall tone here. In general, I don't like the government regulating through taxes because it implies that they know better than me what's good for me, and they don't. I drink soda all the time. You know why? Because it's fucking delicious. And yes, I have a pretty good idea what it's doing to my body. You know what else I do? Pay for my own health insurance. It also leads to huge misallocation of resources, as anyone who's taken a class on economics not taught by Krugman could tell you.

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Daniel
AUTHOR
February 11, 2011 at 4:46 PM delete

Everyone else has smart things to say. I like the idea because Michelle Obama likes it and I will follow her into hellfires.

But really, do like a liberal. Think of the fat poor children, please. That's all we ever do.

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J. Rex
AUTHOR
February 14, 2011 at 9:35 AM delete

if this one cent per ounce consumption law goes into effect, cody will immediately transform from a rich successful lawyer into a poor starving one

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