Record numbers of voters turned out on May 2 to say no to a soda tax in Santa Fe, New Mexico. By proposing a two-cent-per-ounce tax on sugary soft drinks, policymakers meant to encourage healthier consumption choices. What soda tax advocates dont realize, however, is that a soda tax might actually encourage worse eating and drinking habits.
Santa Fes decisive defeat of the soda tax (11,533 no votes versus 8,382 votes in favor) is a win for public health even if it seems like a loss at first glance. Its also true, though, that governments around the world could do more to improve their citizens health.The tax seems brilliant in its straightforward logic. People buy less of a good when its price goes up, and so higher after-tax soda prices should lead individuals to consume less sugary soft drinks, thereby avoiding the scourges of obesity, Type II diabetes and tooth decay, or at least that is what the supporters claim. But simple thinking isnt enough. Individuals react in more ways than politicians can anticipate and are ingenious when it comes to finding ways around obstacles between them and their favorite vices.
Philadelphias experience with a 1.5-cent-per-ounce soda tax demonstrates how easy it is to find ways around a tax confined to one city. It took retailers located outside Philadelphia only a few days before they advertised their locations to pull in soft drink shoppers. Guides to soda sellers just outside the bounds of the taxing jurisdiction quickly emerged on social media.
Even when soda taxes increase prices, as Econ 101 teaches, it doesnt mean that healthier options will be chosen instead. Research shows that people substitute salty and fatty foods when faced with a half-cent-per-ounce soda tax. Moreover, the effect of the tax on obesity is vanishingly small: the same researchers concluded that the tax likely would cause less than a two-pound weight loss in low-income individuals over the next decade.
Less than a two-pound weight loss over ten years is a far cry from the health benefits promised by the soda taxs advocates, but the taxs effects dont stop there. People naturally choose healthier options and are more likely to exercise as their incomes rise. So a regressive soda tax is a bad way to promote health because it reduces the disposable incomes of those it is meant to help. In fact, economic research shows that sin taxes like those proposed for soda may even exacerbate income inequality.
If soda taxes boosted economic growth, then maybe their defenders could claim they will help individuals make healthier choices. But the number of reasons to think soda taxes hurt the economies of cities that enacted them is growing. Take the case of Philadelphia again. Only two months after implementation of Philadelphias 1.5-cent-per-ounce tax, Phillys supermarkets and soda distributors reported 30 to 50 percent drops in beverage sales and announced layoffslikely because of cross-border shopping. We can only hope that the Philadelphians who lost their jobs found new employment in nearby towns.
Soda sales dropped by ten percent in Berkeley, Calif., in the months following the enactment of a one-cent-per-ounce tax there, but they rose by seven percent just beyond the city limits.
The lost jobs and the sugary, fatty and carbohydrate-laden foods individuals consume when soda prices rise supposedly are unintended consequences of the seemingly simple soda tax. The evidence is accumulating, however, that such consequences are foreseeable and likely create negative health effects of the same magnitudes as the ones policymakers are attempting to prevent.
The failure of soda taxes to promote healthy choices doesnt mean that governments are incapable of helping people live healthier livesits just that the right path to that goal isnt through social engineering.
Instead of bludgeoning the already poor with regressive taxes, policymakers should try to get out of their way and allow them to improve their own lives. Easing occupational licensing restrictions and clearing out the tangled web of regulations that impede small-business startups and innovation are great places to start.
|William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, Editor-in-Chief of Public Choice, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|
|Josh T. Smith is a master's student at Utah State University majoring in economics and political science. He works as a Policy Analyst at Strata, a policy research center in Logan, Utah.|
So-called sin taxesthe taxing of certain products, like alcohol and tobacco, that are deemed to be politically incorrecthave long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such sinful products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?