Pro-tax: Is this tax an effective way to address the obesity issue?

Let's start with an overview of what proponents of the soda tax are asserting:

Tax soda & sugary drinks >> Reduce consumption of said drinks >> Reduce obesity rates >> Reduce health care costs (which are affected by high obesity rates—$90–100 billion) AND raise revenue

It may sound too good, and too simple, to be true, but I argue that it really does add up.

Reducing consumption

The first concern with the diagram above is whether a tax will effectively reduce consumption of sugary drinks. Economics tells us that, in general, a tax on any good will lower the amount people consume. The amount of that change, however, depends on the elasticity of demand for that good.

Now, for a quick explanation of elasticity. The more substitutes there are to replace the taxed good, the more people will use those substitutes instead of the now-more-expensive good. An example of a good with low elasticity is gasoline—if the price increases, although people may make small changes (like do their errands all in one trip or carpool) they would have to make drastic changes (like move closer to work or buy a new hybrid car) to significantly reduce consumption of gasoline. So even though prices increase, demand and consumption remain fairly steady. Sugary drinks, however, are more elastic goods. Because there are plenty of substitutes, consumption is likely to be significantly reduced when prices rise.

Okay, so sugary drinks are elastic. Now we need to determine how much pricier the drinks need to be before people start choosing other (hopefully more healthful) goods.

In May, the Senate Finance Committee discussed a variety of options to fund health care reform. One of the considerations was a tax of one cent per ounce on sugary drinks. This was estimated to raise about $16 million per year in revenue, and for consumers, it would mean about a 20 percent increase in price. (Note: Energy drinks and sports drinks would be included; diet sodas would be exempt.)

Interestingly, the Baucus plan does not mention a tax on drinks.

So is this proposed tax high enough to reduce consumption? Most news stories cited an April 2009 article in the New England Journal of Medicine, stating that a penny-per-ounce tax could reduce consumption of sugary beverages by more than 10 percent. The article itself cites several studies that showed price increases could indeed reduce consumption.

Why single out soda?

Sure, the tax can reduce consumption, but we also need to prove that reducing consumption of soda can actually help reduce obesity. A common argument against the tax is that soda is not the only contributing factor to obesity, so it is unfair and ineffective to single it out for taxation. Kevin Keane, senior vice president for public affairs of the American Beverage Association, stated, “When it comes to losing weight, all calories count, regardless of food source.”

All calories do count, but calories aren’t the only thing that counts when it comes to weight and well-being. Nutritional value matters too, and soda offers very little of that. Instead, numerous studies show that regular consumption of soda is linked to weight gain (like this one and this one) as well as tooth decay.

One study from the National Cancer Institute found that soft drinks provide a larger percentage of calories to overweight youths than to other youths. For the teenage boys surveyed, soft drinks provided 10.3 percent of the calories consumed by overweight boys, but 7.6 percent of the calories consumed by normal weight boys. Both groups had a similar overall caloric intake.

In an intervention study of British schoolchildren ages 7 to 11, researchers studied the effect of strongly encouraging children in half the classes to drink less “fizzy” drinks. After one year, the percentage of overweight and obese children in the “drink less” group remained the same, but increased by 7.5 percent in the control group.

Also, as one New York Times columnist puts it, Keane’s argument is “akin to saying that when I have only partial responsibility, I have no responsibility. . . . Assuredly, many factors affect our weight. But it doesn’t follow that because a policy fails to address all of them, it should not address any.”

I think that the soda tax is definitely a good start, but of course it would be most effective if it were implemented in conjunction with other policies and campaigns. These measures will make it more likely that people will substitute their taxed soda with more healthful things. Here are some possible policies:

--Use revenues to fund obesity prevention/treatment programs, particularly for children.
--Reduce or eliminate corn subsidies, which primarily subsidizes high fructose corn syrup, which is a major ingredient in soda, and which is pretty bad all-around.
--Subsidize healthy foods. (Fresh produce is still significantly more expensive than sweets and soft drinks.)
--Reduce advertising of sugary drinks to children.

A matter of responsibility

Some people have also criticized the idea of a tax on soda because, they argue, people should just take personal responsibility and eat right without being nudged along by an invisible hand.

But as one writer argues, we live in a “toxic food environment” that “pushes self-control and long-term planning beyond what the average mind can handle.” Because unhealthy food is cheap, appealing, and readily available, we constantly have to avoid the temptation to indulge. And when you add in complications like food addictions, it gets even messier. Overall, it’s an uphill battle for even the most conscientious consumer. It’s about time we asked the beverage industry to take some responsibility.