Soda Taxes Leave Bitter Taste, Empty Wallets

Soda Taxes Leave Bitter Taste, Empty Wallets

Lawmakers in cities such as Boulder, Colorado and Oakland, California are asking voters to approve ballot measures that would increase the cost of soda and other sweetened beverages. These so-called “health-related taxes” are supposed to improve the general health of the public by making drinks lawmakers deem unhealthy more expensive to buy, thereby reducing consumer demand for those drinks. 

But instead of harnessing economics and social engineering to improve people’s health, soda taxes end up abusing taxpayers and improving only the health of governments’ revenue streams.

In Boulder and Oakland, for instance, the tax will be paid directly by grocery distributors. But consumers will be the ones paying the bill in the form of price hikes that will be passed along to cover the additional cost of doing business and selling food to consumers.

Not only will consumer prices go up, the price increases will almost certainly fail to achieve their stated goal: Reducing consumer demand for unhealthy products. Scholarly research has shown the link between lawmakers’ intentions and consumers’ reactions to be as fleeting and tenuous as the fizz escaping from a freshly opened two-liter can of soda.

In 2015, University of Massachusetts-Amherst researchers Francesca Colantuoni and Christian Rojas examined datasets consisting of nearly a decade’s worth of consumer data collected in two states in order to study how consumers in the real world have reacted to health-related taxes on soda. They found that instead of reducing consumption of sugary drinks, health-related taxes had no measurable impact on consumers’ purchases — even though the taxes did increase the price of the goods they bought. As they put it: “after the tax is applied, there is an overall increase in the tax-exclusive price in the treatment city that does not translate in a decrease in consumption either.” In other words, soda taxes don’t make consumers buy less soda, but they do make groceries more expensive.

A 2011 study reached similar conclusions. U.S. Department of Agriculture Senior Economist Biing-Hwan Lin and University of Florida-Gainesville Department of Food and Resource Economics professor Jonq-Ying Lee used data on consumer buying habits collected by Nielsen Holdings PLC, an international consumer research organization operating in more than 100 countries, and the Centers for Disease Control and Prevention, to model how a hypothetical national sin tax hiking the price of soda by 20 percent would impact consumers’ health. They found that big taxes on soda have a small effect on public health, but give a big boost to government revenues. A national 20 percent tax on soda, for instance, would spur only an “average daily reductionof 34–47 calories among adults and 40–51 calories among children,” but it would expand government’s budget waistline, boosting revenue by an estimated $5.8 billion.

Instead of going on a tax-and-spend bender, lawmakers should admit that they’re the ones with the consumption problem. A real prescription for a healthier economy and happier consumers is lower government spending and a lighter tax burden.

Jesse Hathaway (jhathaway@heartland.org) is a research fellow with The Heartland Institute.

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