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Thursday, February 9, 2012

New Study on Possible Positive Effect of Tax on Sugar Beverages

Occasionally we hear of someone suggesting a tax on some type of sugar-filled product, such as soda. I have written about this a few times, generally finding such taxes to be a bad idea because of inequities, complexity and inefficiency. For example, it can be difficult to define exactly what is to be taxed, the tax is regressive and the proposals usually single out one type of "bad" while leaving others untaxed (such as taxing soda, but not sugar-filled juices or other sugar beverages).

For some prior writings, see:
While it doesn't change my mind about the failure to satisfy principles of good tax policy sufficiently, a recent study from researchers at Columbia University Medical Center and the University of California, San Francisco - "A Penny-Per-Ounce Tax on Sugar-Sweetened Beverages Keeps the Doctor Away and Saves Money, published in January in Health Affairs, is quite interesting (click here for summary). Their abstract:

"Sugar-sweetened beverages are a major contributor to the US obesity and diabetes epidemics. Using the Coronary Heart Disease Policy Model, we examined the potential impact on health and health spending of a nationwide penny-per-ounce excise tax on these beverages. We found that the tax would reduce consumption of these beverages by 15 percent among adults ages 25-64. Over the period 2010-20, the tax was estimated to prevent 2.4 million diabetes person-years, 95,000 coronary heart events, 8,000 strokes, and 26,000 premature deaths, while avoiding more than $17 billion in medical costs. In addition to generating approximately $13 billion in annual tax revenue, a modest tax on sugar-sweetened beverages could reduce the adverse health and cost burdens of obesity, diabetes, and cardiovascular diseases."

They observe that the cheap prices of soda and other sugary drinks mask the bigger costs to individuals, government and society owing to diabetes and obesity related diseases.

That is a reminder that there are negative externalities on what the authors refer to as "liquid candy." 
Generally, negative externalities justify some type of tax or fee or penalty to cover their costs. I do not think though that a tax on sweetened beverages is the answer.  Consider that a lot of other foods have lots of sugar - candy, chocolate milk, ice cream, smoothies, donuts, cookies, crackers, and more. Adding a tax on all of these items based on sugar content would be quite complex.  Perhaps there should be a tax on the manufacture of sugar (that is, move it further up the supply chain so fewer taxpayers are involved).

But, it still isn't even that easy because there are other causes of obesity related diseases, such as inactivity - perhaps watching too much television.  That's what led New Mexico to propose a tax on video games and television in 2008 (see my Tax Insider article link above).  The tax fails to satisfy key principles of good tax policy.

A tax is also the "stick" approach.  Would a carrot approach be better?  Offer grants or other subsidies for healthy behavior, weight loss, exercise programs.  Sounds complex (it would be).

What do you think?

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