Santa Fe’s Rejection of Soda Tax a Win for Public Health

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 don’t realize, however, is that a soda tax might actually encourage worse eating and drinking habits.

Santa Fe’s 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. It’s 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 isn’t 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.

Philadelphia’s 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 doesn’t 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 tax’s advocates, but the tax’s effects don’t 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 Philadelphia’s 1.5-cent-per-ounce tax, Philly’s supermarkets and soda distributors reported 30 to 50 percent drops in beverage sales and announced layoffs—likely 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 doesn’t mean that governments are incapable of helping people live healthier lives—it’s just that the right path to that goal isn’t 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.