Soda Tax Would Have Little Effect on Obesity

April 1, 2011

While almost all taxes are problematic because, in the process of raising revenues, they discourage a desirable activity, taxing "bad" activities supposedly generates cash flow while discouraging the underlying activity.  Unfortunately, like many free lunches, the health benefit from a soda tax is a mirage, say Jonathan Klick of the University of Pennsylvania School of Law, and Eric A. Helland of Claremont McKenna College.

  • Uniformly, studies looking at the effect of actual soda taxes implemented at the state level find that, while the taxes do lead to a moderate decrease in soda consumption, the net effect on obesity is next to zero.
  • Studies looking at data covering the full menu of consumption choices show that when people reduce their drinking of soda, they substitute to other calorie-dense drinks like milk and juice.
  • Although not expressly examined in the consumption studies, it is also reasonable to assume that consumption patterns may change in other ways as well.
  • For instance, adults may trade their Pepsi for a Pabst, while some individuals may decide that, because they stopped drinking Coke, they are free to eat more cake.

A comparable tax on all caloric intake might generate the health benefits policymakers seek.  But despite the desire to fight obesity, no politician can stomach high taxes on food across the board.  Yes, individuals do seem to be price sensitive when it comes to soda and other sugar-sweetened beverages.  That implies, however, that any increase in tax rates will be offset largely by declining demand for soda specifically, but not for calorie-rich foods overall, say Klick and Helland.

Source: Jonathan Klick and Eric A. Helland, "Slim Odds," Regulation Magazine, Spring 2011.

For text:

http://www.cato.org/pubs/regulation/regv34n1/regv34n1-3.pdf 

 

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