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Saturday, March 13, 2010

Soda Taxes and Tax Policy

The idea of taxing sodas, usually ones with sugar and sometimes other sugary drinks, is back in the news. NY Governor Patterson has again proposed a tax of one cent per ounce on sugar sodas. He says this 12 cents per can can bring in $1 billion to help pay for schools and health care (NY Governor Defends Soda Tax, Reuters). Proponents note the concerns of obesity and diabetes and other problems of unhealthy foods. Opponents say such taxes don't work and might result in a loss of jobs.

There is also an article in The Vancouver Sun ("'Soda tax' movement gains steam," 3/11/10). This article notes that Canada is not discussing soda taxes, but is instead pursuing school nutrition policies to address obesity concerns.

How does a soda tax stack up under some principles of good tax policy?
  • Equity & fairness - a soda tax is a regressive consumption tax. It will represent a higher percentage of the income of a low-income taxpayer relative to a high income taxpayer. While single out one unhealthy product when there are so many?
  • Economy in collection - if there were already some reporting or collection for sale of soda, perhaps the tax could be tacked on. For example, many jurisdictions collection a deposit on bottles, but there would certainly be added costs because the soda tax would likely not apply to the same items for which a deposit is collected. New tax forms and enforcement mechanisms would be needed.
  • Convenience of payment - since the soda tax would be added on at time of purchase, the person would know of it and that it could be avoided by not making that particular purchase.
  • Simplicity - a tax on sugary beverages would likely be complex in that there would be need of a definition of what is taxed. For example, would flavored water be subject to tax? Would all diet drinks be exempt? How do fast food restaurants comply if customers can get their own beverage?
  • Neutrality - would the tax affect a person's buying decisions? Probably and that is what proponents are hoping for - that consumption will go down, but not enough that no money is raised.
  • Economic growth and efficiency - soda manufacturers and distributors are some of the biggest companies around. What happens if some customers decided to drink water instead (if it is bottled water, perhaps that is ok as some of these companies likely also distribute bottled water). Some people may switch from sugar to diet sodas. Certainly, it is possible that there could be some job loss, but it seems likely that it would be deployed elsewhere or the companies would come up with new products that are not taxed.
  • Minimum tax gap - this is a tough one at the local and state level as people living near the border can easily go to a neighboring state to get the item to avoid the tax.
  • Alternatives - the state could review its spending to see where it might be encouraging unhealthy behavior, such as in low-quality school lunches and K-12 that offers little or no physical activity. Why not pursue public education campaigns to better inform citizens of healthy and unhealthy food choices. California requires restaurants to post calorie and related information (LA Times, 9/30/08). Such information can lead to better food selection choices. Also, finding ways to encourage people to exercise more should be explored.

Principles of good tax policy indicate that a soda tax has problems. Alternatives to address both revenue and health concerns should be explored.

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