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Home , Sales tax, Sin tax, Sugary drink tax

REPORT 10.07.19 Should There Be a Soda ?

Joyce Beebe, Ph.D., Fellow, Center for

Warren Buffet once told the media that his intake of sugary drinks.5 Since the 1970s, secret of staying young and healthy is to successful marketing, lower prices, increased drink five cans of Coca- every day.1 portion sizes, and greater availability have Although everyone has their own secrets contributed to increased consumption of to longevity, Buffet’s dietary choice is not these beverages.6 Multiple publications embraced by the American Heart Association indicate sugary drinks are the largest single (AHA), which considers and heart source of added sugars in today’s diet, diseases caused by soda to be so devastating accounting for half of Americans’ added that it recommends taxing sugary drinks to sugar consumption. This leads researchers reduce consumption.2 Not surprisingly, a soda to believe the association of does not sit well with industry groups consumption and weight gain is stronger including the American Beverage Association than for any other types of food or beverage,7 (ABA), which adamantly opposes such . which provides the foundation for soda taxes. This report reviews the controversies of taxing sugary drinks; describes recent global, state, and local experiences of developing AND “VINTAGE” and implementing soda taxes; and provides SODA TAXES practical policy considerations.3 Before reviewing the current soda tax

debate, it is important to remember that Sugary drinks are the HEALTH STATISTICS AND SODA soda is subject to sales tax at general or largest single source CONSUMPTION TRENDS reduced rates in 35 states.8 The soda tax of added sugars debate over the last decade centers on in today’s diet, An Organisation for Economic Co-operation imposing taxes on sugary drinks. and Development (OECD) study shows that Broadly speaking, excise taxes single accounting for half of among 44 countries surveyed in 2015, the out a particular good or activity to either Americans’ U.S. and have the highest obesity generate revenue or deter consumption consumption, which rates for people 15 years and older, at 38% through increased prices. Common excise provides the foundation and 30% respectively.4 These statistics are tax examples include levies on cigarettes, projected to be 47% in the U.S. and 39% in alcoholic beverages, soda, gas, lottery, and for soda taxes. Mexico by 2030. The study also points out an amusement activities. Due to the nature alarming trend for highly educated males in of such activities, supporters of excise the U.S.: although women and less educated taxes on cigarettes, alcoholic beverages, people have the highest rates of obesity, and soda often call them “sin taxes.” male obesity, especially among the highly Because the ultimate goal is to improve educated, has been the most rapidly growing health outcomes, recent soda taxes usually of all demographic groups. prioritize consumption reduction over Besides these disconcerting statistics, revenue generation. numerous studies link several common Besides the narrowly targeted tax forms of noncommunicable diseases, base, excise tax on sugary drinks differs including weight gain, obesity, type two from sales tax in several major ways. First, , and heart disease, to the increased although retailers collect and remit sales BAKER INSTITUTE REPORT // 10.07.19

tax, customers typically bear the financial tax, effective since January 2015, is the first burden of it. In contrast, although excise nonvintage soda tax in recent years, and it tax is usually imposed on distributors of received 76% approval during the voting sugary beverages, who can pass the price process.13 Although multiple studies show increase on to retailers and consumers, they that the tax led to lower soda consumption, may choose to absorb part of it. As a result, producers and the ABA have been consumers may not bear the full burden of state and city lawmakers to prevent the tax. In addition, sales tax on soda is based the tax from expanding. As a result, the on the retail price of a drink, whereas excise state of passed a 12-year ban on a tax is usually based on the volume of sugar statewide soda tax in June 2018.14 In February added or the size of a soda container. 2019, several lawmakers introduced a five- A few states, including Alabama, bill package, including imposing statewide Arkansas, , , , soda taxes, displaying health-related warning and , have “vintage” soda signs, and prohibiting the sale of sugar- taxes that were established decades ago. sweetened beverages exceeding 16 ounces, These states impose soda taxes in the form in an effort to overturn the ban.15 The bills of licensing charges, gross-receipts taxes, did not advance; however, the legislators or excise taxes. The vintage soda taxes in signaled they would reintroduce the Alabama (licensing) and Tennessee (gross measures next year.16 receipts tax) are levies on the privilege The City Council passed the of working or conducting business in the soda tax in June 2016 by a 13-4 vote. Several state, whereas other vintage soda taxes months later, a coalition of business owners, focus on revenue collection and financing retailers, and industry groups led by the ABA specific public programs instead of curbing filed a lawsuit to repeal the tax. After the consumption and changing consumer Commonwealth Court upheld behaviors. For example, Arkansas dedicates it in June 2017, the coalition appealed to the the to fund its Medicaid Pennsylvania Supreme Court, claiming the program, Virginia funds litter control and soda tax violates the Sterling Act, a state recycling programs, and West Virginia uses statute that prevents the local government the revenue for the medical school at West from imposing levies on goods already taxed Virginia University.9 by the state.17 In July 2018, the Pennsylvania Supreme Court ruled that the tax is legal and does not duplicate the state’s sales tax TODAY’S SODA TAXES because consumers bear the burden of the sales tax, while the soda tax is levied on There is no federal soda tax in the U.S., and distributors.18 based on state experiences and recent polls, Besides the prolonged legal fight, a it is highly unlikely there will be one in the major drawback of Philadelphia’s soda tax is near future. Many recently proposed and cross-shopping, which is when consumers implemented soda taxes are at the local travel to nearby cities without a soda tax and municipality levels, with seven cities and make purchases there. One study 10 currently having soda taxes. In 2019, documented a tax-related reduction in California, , , New soda consumption of 46% in and around York, Rhode Island, and Vermont initiated the city; however, after considering the 11 soda tax proposals but none passed. effect of cross-shopping within a six- Globally, approximately 40 countries— mile radius, soda consumption was only including Mexico, , Ireland, , reduced by 22%.19 In addition, Philadelphia’s Belgium, Chile, , and the U.K.—have soda tax covers any beverage with added nationwide soda taxes, and this number is sweeteners, including diet soda and fruit 12 likely to increase. with a moderate amount of sugar. Berkeley, California, and Philadelphia, This generated discontent, as people argued Pennsylvania, have the most frequently that mildly sweetened beverages might not discussed soda tax cases. Berkeley’s soda be as harmful to health as highly sweetened 2 SHOULD THERE BE A SODA TAX?

beverages. Finally, the tax only applies to and Philadelphia used soda liquids and does not cover powered drink tax revenue on health promotion programs mixes, which provide people with another in low-income communities, parks and way to avoid the tax but still consume the recreation development, improved drinking same amount of sugar. water access, pre-kindergarten education, The largest setback for soda tax in and chronic disease prevention. Finally, recent years probably took place in Cook if lower income households respond to County, . A soda tax went into tax-induced higher prices by reducing effect in August 2017 and was repealed in consumption more than higher income December 2017, lasting only four months. households do, they can avoid a large The major reasons for this failure include portion of the tax burden. its disproportional impact on low-income Opponents also argue that the soda households, inability to shift people’s tax is not an effective or appropriate tool. consumption toward healthier products, and There are several layers to this argument. limited revenue potential. First, they believe taxes primarily exist to raise revenue, and governments should not policies to handle complicated ARGUMENTS AGAINST SODA TAX social issues, such as using tax-induced soda price increases to change people’s Soda tax opponents usually cite regressivity consumption patterns.23 Even if soda tax as the major reason for their disapproval. generates reasonable amounts of revenue, Soda tax opponents Regressive taxes take a larger percentage it is not a reliable source. Instead, well- cite regressivity as of income from low-income than designed income, sales, and property taxes 20 the major reason for from high-income taxpayers. Because should be the primary sources to fund core lower income households spend a higher government services because they are their disapproval. They portion of their income on soda, they pay predictable. Excise tax, on the other hand, also argue the tax is disproportionally more taxes. Soda tax also is generally not a stable source of revenue not effective because hurts low- to moderate-income families by because the tax base is narrow and people’s distributors may reducing employment. For example, several consumption patterns may fluctuate. ABA publications argue Philadelphia’s soda Supporters of soda tax reference not fully pass it on tax caused 1,200 job losses in the soda the “” argument and indicate that to consumers, industry; analysts have made because we have to raise revenue for who may engage in similar observations.21 government functions, it is better to tax cross-shopping. Supporters counter that a more “bads” than “goods.” Former Secretary of comprehensive consideration would paint a the Treasury Lawrence Summers called 22 different picture: first, the negative health the soda tax “as close to free-lunch, win- outcomes such as obesity and diabetes are win policy as economists have found.”24 themselves regressive, meaning that lower It is also better to resort to preventive income households have higher rates of measures before facing dire consequences; soda-related health issues. A “corrective” for example, it is less painful for consumers soda tax that changes people’s behaviors to cut consumption of cigarettes or soda may therefore provide greater benefits to today than to experience negative health the poor than the rich. outcomes in the future. In addition, because lower income The effectiveness of soda tax in reducing households suffer more from obesity and people’s sugar consumption or improving diabetes, they spend more money on health is also subject to debate. From a related medical care than their wealthier tax design perspective, most soda taxes counterparts. As such, the financial costs are levied at the distributor level and are of treating these conditions are regressive. applicable to a subset of products within a Third, revenue raised by soda taxes can larger category. The first impairment to soda be used on projects that benefit lower tax’s effectiveness is that distributors may income households, which can alleviate or may not fully pass the tax on to retailers, tax regressivity concerns. For example, which means that consumers may or may 3 BAKER INSTITUTE REPORT // 10.07.19

not fully experience the price increase. ARGUMENTS SUPPORTING SODA TAX Empirical studies show a wide range of tax pass-through rates, ranging from moderate “Sugar, rum and tobacco are (40%), high (75%), to full (100%).25 commodities which are nowhere Even if distributors fully pass on the tax, necessaries of life, which are become consumers may engage in objects of almost universal consumption, activities, such as cross-shopping or and which are therefore extremely purchasing other untaxed beverages. Some proper subjects of taxation.” (Adam studies show that when people switch Smith, The Wealth of Nations, 1776) away from taxed products, they typically Soda tax advocates often reference Adam substitute them with equally unhealthy Smith’s insight for support.31 His viewpoint items. As a result, the total sugar intake was indeed validated two years after the or calorie consumption does not change, Constitution was ratified: the first U.S. excise hampering the effectiveness of the soda tax. tax was imposed on whiskey, specifically Finally, opponents indicate that higher introduced to reduce consumption.32 More soda taxes do not always reduce obesity recently, cigarette taxes were widely adopted rates. The end result can be a no-win in the 1970s to reduce smoking, decrease situation: people do not buy less soda, sugar tobacco-related diseases, and promote intake remains the same, obesity stays high, health awareness.33 As a result, soda tax The issue with grouping and workers and consumers are hurt.27 supporters see many parallels between soda Supporters argue that existing soda tobacco, , taxes and cigarette taxes. taxes are not effective because they are not and soda together The problem with grouping tobacco, well designed, and most importantly, they alcohol, and soda together and labeling them and labeling them as are too low. If the taxes are not high enough, as equally detrimental to health lies in the equally detrimental to they will hurt low-income households by lack of concrete and convincing scientific increasing the cost of soda, but not enough health lies in the lack evidence. Many studies have documented to prevent them from purchasing it. A recent of convincing scientific the harmful effects of tobacco on human study that investigated the optimal federal health, including secondhand smoke. evidence. Unlike sugary drink tax recommends a higher However, unlike tobacco, sugary drinks tobacco, sugary drinks tax. The researchers conclude a federal tax and even alcohol are safe if consumed in and even alcohol are of 1 to 2.1 cents per ounce of sugar would moderation. Politically, the case for alcohol- generate $2.4 billion to $7 billion in revenue safe if consumed related taxes is already harder to make annually, a level higher than most existing in moderation. than for cigarette taxes, because drinking is taxes.28 In addition, the study states that a culturally more acceptable than smoking.34 federal- or state-level soda tax would be Soda taxes will face an even harder sell more effective than a city-level tax because than alcohol taxes, because sugar usually it would cover a larger population and projects a joyful, celebratory image; many reduce the chance of cross-shopping. consequences are also not immediately A World Health Organization (WHO) visible—for instance, reckless drunk drivers study supports higher soda taxes: it may cause casualties, but people who states that the consumption of sugar is overconsume soda will not show symptoms associated with obesity, and taxing sugar until years later. reduces consumption.29 WHO recommends Indeed, supporters of the soda tax a sugary beverage tax at 20% of retail often mention , which is when prices that should be adjusted regularly to people may negatively affect others when account for income growth and inflation to they consume certain things. Because remain effective.30 these consumers do not absorb the full cost burden for their behavior, they can independently decide to smoke and drink more than is best for society.35 As such, an

4 SHOULD THERE BE A SODA TAX?

excise tax is justified to make consumers households with the highest knowledge. bear the full costs of their behavior. In the In addition, low-income (less than $10,000) case of soda, heavy soda drinkers impose households not only have low nutrition costs on everyone, including lighter soda knowledge, but they also admit to drinking drinkers, in the form of higher health care soda more often than they should.39 A study expenses. Diabetes treatment alone costs an estimated that if all individuals had perfect estimated $245 billion per year in the U.S., self-control and the same knowledge as and everyone pays higher health insurance nutritionists, the U.S. would consume premiums as a result.36 31%-37% less soda. From a purely financial perspective, Despite different views about the magnitude of externality across the causes of externality, behavioral different excise tax targets may vary. Some economists also recommended soda economists argue that because smokers die taxes to correct the overconsumption. earlier, the financial savings from premature In addition, they prescribe several other mortality in terms of lower nursing home intervention methodologies. First, because costs and Social Security exceed the higher lower income, less educated individuals medical and life insurance costs.37 Similarly, tend to have lower nutrition knowledge, although there has been limited evidence for promoting awareness of proper dietary how much soda drinkers cost taxpayers, it behavior could yield promising results.40 may not be as much as one may expect. For instance, public policies can utilize A more moderate view of externality mass media campaigns to educate people goes beyond the notion that consumers of regarding the health impacts of added Supporters of the soda “sin products,” including soda, are possibly sugars. In New York City, where certain tax recognize that it selfish or ignorant about the health care chain restaurants are required to post has flaws, but modest costs imposed on others. Instead, the sin calorie information on menus, consumers products provide short-term benefits and who saw the calorie information purchased measures do not long-term costs, and people are typically fewer sugary drinks than consumers who generate results. unable to see past the instant gratification did not see the calorie counts.41 In 2010, of overconsuming soda, thereby ignoring the (ACA) also began the long-term negative health outcomes. requiring certain chain restaurants to post In other words, due to the lack of foresight, calorie information on their menus. Finally, consumers can underestimate the long-term a cap on sugary drink portion sizes may harmful effects of sugar, and they often address the self-control issues of heavy also overestimate their ability to quit or soda drinkers, because larger portion reduce consumption once they start. Taxing sizes encourage increased consumption. soda essentially presents consumers with a For instance, former New York City more concrete way to assess the costs and mayor advocated a benefits of consuming sugary beverages.38 ban prohibiting the sale of sugary drinks Emerging behavioral economics larger than 16 ounces in food service literature follows this thinking and establishments in the city. However, explores externality from a different angle. this rule was challenged and eventually These studies claim that people who overturned in 2014. overconsume soda are simply self-deficient; Overall, supporters recognize that issues such as self-control problems, soda taxes are unpopular and have flaws. inattention, and incorrect beliefs lead However, they claim that modest measures to their overconsumption. Furthermore, such as education campaigns and promoting certain groups are more vulnerable to these better nutrition do not generate results. behavioral deficiencies. For instance, several Therefore, drastic measures such as soda studies have found that households with the taxes are necessary to curb consumption.42 lowest nutrition knowledge purchase more than twice as many sugary beverages as

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Earlier this year, several researchers PROVING THE EFFECTIVENESS OF took a holistic approach to quantify two SODA TAX conflicting forces of soda taxes. The As discussed, a major challenge for soda tax regressivity concerns call for lower soda proponents is to prove the effectiveness of taxes because lower income households pay the tax. There are three major evidence- more taxes. In contrast, the concentration based issues: lack of sufficient evidence, of negative health outcomes in lower connection, and credibility. income households calls for higher soda With regard to the evidence for soda taxes because the same households benefit taxes, an effort spearheaded by former New more from both drinking less soda and York City mayor Bloomberg and former the recycled tax revenue used in their 45 Treasury Secretary Summers reported taxes communities. The researchers conclude on tobacco, alcohol, and sugary drinks are that soda taxes generate “net benefits” to essential to combat noncommunicable society after considering health costs, better diseases.43 Their ongoing initiative health outcomes, people’s enjoyment of recognizes that tobacco has the largest and soda, and tax revenue, among other factors. best-documented health risk, and it leads Although the optimal soda might be 46 to about 8 million deaths per year globally. debatable, it is not zero. Next in line is alcohol, which causes 3 million The final issue is credibility. For the Three major evidence- public, it is hard to judge the quality of soda based issues challenge deaths. Finally, obesity and diabetes cause 6 million deaths per year globally, and tax studies based on technical methods. the effectiveness of the consumption of sugary beverages is a In addition, industry groups and advocacy soda taxes: lack of contributing factor to both conditions. organizations have retained qualified experts sufficient evidence, no Their study finds that higher tobacco to conduct studies or surveys, and one can typically anticipate a study’s conclusion clearly demonstrated and alcohol prices reduce consumption, save lives, and generate tax revenue. based on the sponsors’ positions. The connection between However, more evidence is still needed consumers eventually gets “research report soda tax and improved to determine if soda taxes generate these fatigue,” and the only message they receive health outcomes, and positive outcomes. As a result, the study is that there is not a set scientific conclusion about soda tax. the credibility of soda concludes that tax on tobacco can do more to reduce premature deaths than any other For instance, several studies that tax analyses. single health policy, and increasing taxes on investigated the short-term effectiveness alcohol also significantly reduces alcohol- of Mexico’s soda tax had different related mortality. On the other hand, taxes conclusions: some researchers found on sugary drinks are described as “prudent,” promising results, where the soda as they incentivize healthier diets and consumption was lower, especially among reduce noncommunicable diseases. low-income groups and households 47 Another evidence-based issue is to with children. However, ConMexico, an demonstrate the connection between industry group, commissioned a study soda tax and improved health outcomes. prepared by the Mexico Institute of Some opponents may accept the notion Technology, which demonstrated soda tax that obesity, diabetes, and heart disease has minimal effects on calories consumed 48 are critical health problems, but they may and no effect on BMI. disagree that sugary drinks contribute to In the U.S., a 2017 study commissioned such conditions. Even if they agree that by the ABA and prepared by Oxford soda is bad for health, they may challenge Economics concluded that Philadelphia’s whether the soda tax reduces sugary drinks soda tax does not substantially improve consumption. Finally, certain opponents health outcomes. The study states that the also do not believe soda tax generates tax’s biggest impacts are the loss of jobs lower noncommunicable diseases or better and consumers substituting beverages health results.44 from liquid form to nontaxed drink mixes.49 The ABA also has a dedicated

6 SHOULD THERE BE A SODA TAX?

webpage about soda tax to document CONCLUSION its sponsored research, viewpoints, and relevant statistics.50 On the other hand, Recent nationwide polls show that Americans many studies summarized by the American are divided about soda tax.55 Overall, people Academy of Pediatrics and the American tend to be more supportive of calorie labeling Heart Association called for soda taxes to and removing sugary drinks from schools, reduce consumption. The organizations but less so for a general soda tax.56 also commissioned economic studies of For soda tax advocates, the evidence is their own.51 For example, an Urban Institute still growing. It is important to gather enough study commissioned by the American Heart evidence to inform meaningful public policy Association concluded that if policymakers debates, as well as ensure that the evidence adopt a soda tax, a single-tier tax based clearly shows that soda taxes can reduce on sugar content instead of soda volume consumption and improve health outcomes. is the most effective tax structure in As the evidence is being gathered, reducing sugar consumption.52 Such taxes improving food and beverage labeling that target high-sugar drinks provide the information and promoting nutrition greatest reduction in sugar consumption knowledge are the best courses for the relative to the economic burdens placed on present. Both the OECD and WHO encourage consumers. promoting healthy diets by improving health For soda tax advocates, literacy and empowering consumers. The it is important to gather improved labeling could range from a more PRODUCER RESPONSE TOWARD evidence that clearly radical form of mandatory health impact shows soda taxes can HEALTHIER CHOICES disclosures similar to the warning labels on reduce consumption Amid their strong lobbying efforts and tobacco products, or a more moderate form marketing campaigns against soda taxes, like encouraging all restaurants to provide and improve health beverage producers have responded to calorie information. Marketing campaigns outcomes. Improving their mounting pressures and consumers’ may be too slow to reverse the soaring food and beverage changing preferences. Gradually, producers rates of chronic diseases; however, such educational efforts are essential to change labeling information have been reducing the sugar content and promoting nutrition in their existing products, releasing new people’s views of sugary beverages. products with lower sugar content, and A thorny issue is that consumers’ knowledge are the best more subtly, reducing bottle sizes while acceptance of a soda tax may depend on courses for the present. maintaining their profit margins.53 whether soda is perceived as a necessity or Although regular soda still accounts if it is viewed more like cigarettes, which are for over half of the beverage industry’s nonessential and harmful to one’s health. In revenue, producers have been focusing on addition, although it is important to correct alternatives including sports and energy tax-induced regressivity by recycling the drinks, sparking water, ready-to-drink tea, revenue and using it in health promotion and and artisanal products such as craft sodas, community-based programs, it is important products made with all-natural ingredients, to bear in mind that the most important and products with added minerals, objective of soda tax is to change consumer vitamins, or protein.54 behaviors. In order to do so, the tax needs to be targeted, well designed, and high enough to generate the desired results. Soda tax is not a panacea. It is certainly true that a soda tax alone will not solve the multibillion-dollar obesity epidemic. In fact, no single public health intervention can solve today’s obesity problem at its current scale. Fiscal policies such as soda tax remain a feasible yet controversial option for the foreseeable future.

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100, no. 1 (January 2000): 43-51, https://bit. ENDNOTES ly/2kQE9PW. 1. Patricia Sellers, “Warren Buffett’s 8. Katherine Loughead, “Sales Tax on Secret to Staying Young: I Eat Like a Six- Soda, Candy, and Other Groceries-2018,” Year-Old,” Fortune, February 25, 2015, , July 2018, https://bit. https://bit.ly/18lWXLw. Evidently this is ly/2uE4DFt. still true in 2019, see Jade Scipioni, “Warren 9. Christian Sorensen, Alec Mullee, and Buffet’s Diet Still Includes 5 Cans of Coke, Harley Duncan, “Soda Taxes, Old and New,” McDonald’s and Dairy Queen,” FoxBusiness, The Tax Advisor, June 1, 2017, https://bit. April 26, 2019, https://fxn.ws/2W7YUUB. ly/2lUNKWm. 2. Natalie D. Muth, “Sugary Drink 10. The Navajo Nation imposes a 2% tax Overload: AAP-AHA Suggest Excise Tax to on , including sugar-sweetened Reduce Consumption,” American Academy beverages. of Pediatrics News, March 25, 2019, https:// 11. Susan Haigh, “States Renew Push bit.ly/2V1Fz6Y. for Taxes on Sugary Drinks,” Boston Herald, 3. This report generally uses soda tax, April 1, 2019, https://bit.ly/2mhoZ6H. sugary drink tax, and sugar-sweetened 12. Global Food Research Program, beverage tax interchangeably. “Sugary Drink Taxes Around the World,” May 4. Organisation for Economic 2019, https://bit.ly/2UWPMky. Co-operation and Development, 2017 13. Healthy Food America, “A Legal Obesity Update (Paris: OECD Publishing, and Practical Guide for Designing Sugary 2017), https://bit.ly/2HSFiOd; Organisation Drink Taxes, Second Edition,” January 2019, for Economic Co-operation and https://bit.ly/2lTE9ip. Development, OECD Health Statistics 2019 14. Three other states—Arizona, (Paris: OECD Publishing, 2019), https://bit. , and Washington—also passed ly/2el6WDF. legislation or referendums that banned local 5. See articles in (1) Susan Kansagra et taxes on sugary drinks. al., “Reducing Sugary Drink Consumption: 15. California Legislative Information, New York City’s Approach,” American Assembly Bills 138, 764, 765, 766, and 347, Journal of Public Health 105, no. 4 (April accessed August 23, 2019, https://bit. 2015): e61–e64, https://bit.ly/2mnrK6D; and ly/1Jtl6eo. (2) “Task Force on for Health, 16. Jeff Daniels, “California Soda Tax Health Taxes to Save Lives: Employing Bill Shelved, In Reprieve For Beverage Effective Excise Taxes on Tobacco, Alcohol, Industry,” CNBC, April 22, 2019, https://cnb. and Sugary Beverages,” Bloomberg cx/2VvRkXb. Philanthropies, April 2019, https://bloombg. 17. Leslie Pappas, “Pennsylvania’s org/2HIwx8G. Top Court Hears Philly Soda Tax Dispute,” 6. U.S. Department of Health and Bloomberg Law, May 16, 2018, https://bit. Human Services and U.S. Department of ly/2kouNL7; Williams v. City of Philadelphia, Agriculture, 2015-2020 Dietary Guidelines Nos. 2 & 3 EAP 2018, https://bit. for Americans, 8th ed., December 2015, ly/2kohmuG. https://bit.ly/2fqJsNN. 18. Leslie Pappas, “Soda Tax Dollars 7. See, for example: (1) Gail Woodward- Keep Flowing in Philly After High Court OK,” Lopez, Janice Kao, and Lorrene Ritchie, “To Bloomberg Law, July 18, 2018, https://bit. What Extent Have Sweetened Beverages ly/2koE2Lr. Contributed to the Obesity Epidemic?” Public 19. Stephan Seiler, Anna Tuchman, Health Nutrition 14, no. 3 (March 2011): 499- and Song Yao, “The Impact of Soda 509, https://bit.ly/2lUB9T5; and (2) Joanne Taxes: Pass-through, Tax Avoidance, and F. Guthrie and Joan F. Morton, “Food Sources Nutritional Effects,” University of Stanford of Sweeteners in the Diets of Americans,” Working Paper, March 12, 2019, https://bit. Journal of American Dietetic Association ly/2Sej8tq.

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20. “Theme 3: Fairness in Taxes, Lesson 27. Buhl, “The Case Against Soda Taxes.” 2: Regressive Taxes,” Understanding Taxes 28. Hunt Allcott, Benjamin Lockwood, Teach, Internal , accessed and Dmitry Taubinsky, “Regressive Sin September 17, 2019, https://bit.ly/2Oxtuqv. Taxes, With an Application to the Optimal 21. John Buhl, “The Case Against Soda Soda Tax,” NBER Working Paper 25841, May Taxes,” Tax Foundation, March 15, 2017, 2019, https://bit.ly/2moQY4A. https://bit.ly/2eD1dv1. 29. See (1) Denis Campbell, “Sugary 22. Larry Summers, “Taxes for Health: Drinks: Panel Advising WHO Stops Short Evidence Clears the Air,” 391, no. of Recommending Tax,” , 10134 (May 19, 2018): 1974-1976, https://bit. June 1, 2018, https://bit.ly/2Jipu7l; and ly/2ktxQ4U. (2) Lawrence Gostin, “2016: The Year of 23. Alec Fornwalt and Nicole Kaeding, the Soda Tax,” The Milbank Quarterly 95, “A Small Victory on the Global Spread of no. 1 (March 7, 2017): 19-23, https://bit. Soda Taxes,” Tax Foundation, June 15, 2018, ly/2lXGs3Y. https://bit.ly/2lTEjq1. 30. World Health Organization, 24. Kate Davidson, “Q&A: Lawrence Fiscal Policies for Diet and Prevention of Summers on Taxes That Save Lives – Noncommunicable Diseases (Geneva: WHO, Real Time Economics,” The Wall Street 2016), https://bit.ly/2krq4sf. The study Journal, January 18, 2018, https://on.wsj. recommends a tax that raises the retail com/2m3ePGD. price of sugary drinks by at least 20%. It 25. Two Berkeley studies found pass- also indicates an excise tax is likely to be the through rates between 40% and 70%. See most effective instrument. (1) John Cawley and David E. Frisvold, “The 31. For example, see (1) Kelly D. Pass-Through of Taxes on Sugar-Sweetened Brownell and Thomas R. Frieden, “Ounces of Beverages to Retail Prices: The Case of Prevention – The Public Policy Case for Taxes Berkeley, California,” Journal of Policy on Sugared Beverages,” The New England Analysis and Management 36, no. 2 (Spring Journal of Medicine 360 (April 2009): 1805- 2017): 303-326, https://bit.ly/2kQy0Dt; 1808, https://bit.ly/2kovT9H; and (2) David and (2) Jennifer Falbe, Nadia Rojas, Anna H. Leonhardt, “Soda as a Tempting Tax Target,” Grummon, and Kristine A. Madsen, “Higher New York Times, May 19, 2009, https://nyti. Retail Prices of Sugar-Sweetened Beverages ms/2mhq7qX. 3 Months After Implementation of an Excise 32. 1) Jennifer Pomeranz, “Advanced Tax in Berkeley, California,” American Policy Options to Regulate Sugar-Sweetened Journal of Public Health 105 (November Beverages to Support Public Health,” Journal 2015): 2194-2201, https://bit.ly/2mnG530. of Public Health Policy 33, no. 1 (February Philadelphia- and Boulder-based studies 2012): 75-88, https://bit.ly/2kU6fKj; and found pass through rates of 100% and 75%. (2) Steve Simon, Alexander Hamilton and See: (3) John Cawley et al., “The Impact of the Whiskey Tax, Alcohol and Tobacco Tax the Philadelphia Beverage Tax on Purchases and Bureau, U.S. Department of the and Consumption by Adults and Children,” Treasury, https://bit.ly/2kTiTsO. Journal of Health Economics 67 (August 33. Jennifer W. Kahende et al., “A 2019), 102225, https://bit.ly/2kU5X6b; and Review of Economic Evaluations of Tobacco (4) John Cawley et al., “The Pass-Through Control Programs,” International Journal of of the Largest Tax on Sugar-Sweetened Environmental Research and Public Health Beverages: The Case of Boulder, ,” 6, no. 1 (February 2009): 51-68, https://bit. NBER Working Paper 25050, September ly/2lUOMlc. 2018, https://bit.ly/2lUBKEj. 34. David Leonhardt, “Let’s Raise a Glass 26. Jason M. Fletcher, David Frisvold, to Fairness,” , December and Nathan Tefft, “Can Soft Drink Taxes 26, 2007, https://nyti.ms/2mnGgvc. Reduce Population Weight?” Contemporary 35. Gostin, “2016: The Year of the Soda Economic Policy 28, no. 1 (January 2010): Tax.” 23-35, https://bit.ly/2miTVU5.

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36. Leslie McGranahan and Diane Israel Journal of Health Policy Research Whitmore Schanzenbach, “Who Would 7, no. 1 (November 2018): 43, https://bit. Be Affected By Soda Taxes?” The Federal ly/2lVO3Ac. Reserve Bank of , Chicago Fed Letter 45. See (1) Press Release, Economists 284, March 2011, https://bit.ly/2kS359U. Find Net Benefit in Soda Tax; (2) Allcott, 37. W. Kip Viscusi, “Cigarette Taxation Lockwood, and Taubinsky, “Should We Tax;” and the Social Consequences of Smoking,” and (3) Allcott, Lockwood, and Taubinsky, in Tax Policy and the Economy, ed. James M. “Regressive Sin Taxes.” Poterba, vol. 9 (Cambridge, MA: MIT Press, 46. Michael W. Long et al., “Cost- 1995), https://bit.ly/2krqgYv. Effectiveness of a Sugar-Sweetened 38. Gregory Mankiw, “Can a Soda Beverage Excise Tax in the U.S.,” American Tax Save Us from Ourselves?” The New Journal of Preventive Medicine 49, no. 1 (July York Times, June 4, 2010, https://nyti. 2015): 112-123, https://bit.ly/2kIfjC3. ms/2lWrFqg. 47. (1) M. Arantxa Colchero, Mariana 39. To measure self-control, the Molina, and Carlos M. Guerrero-Lopez, “After researchers asked respondents to state their Mexico Implemented a Tax, Purchases of level of agreement with the statement, “I Sugar-Sweetened Beverages Decreased drink soda pop or other sugar-sweetened and of Water Increased: Difference by Place beverages more often than I should.” Allcott, of Residence, Household Composition, and Lockwood, and Taubinsky, “Regressive Sin Income Level,” Journal of Nutrition 147, Taxes.” no. 8 (June 2017): jn251892, https://bit. 40. See (1) Press Release, Economists ly/2mlKuTX; and (2) M. Arantxa Colchero Find Net Benefit in Soda Tax, NYU, May et al., “Beverage Purchases from Stores 19, 2019, https://bit.ly/2kU6FjR; (2) in Mexico under the Excise Tax on Sugar Hunt Allcott, Benjamin Lockwood, and Sweetened Beverages: Observational Dmitry Taubinsky, “Should We Tax Sugar- Study,” BMJ 352 (2016): h6704, https://bit. Sweetened Beverages? An Overview of ly/2kH9WDb. Theory and Evidence,” NBER Working Paper 48. (1) Arturo Aguilar, Emilio Gutierrez, 25842, May 2019, https://bit.ly/2krFOeM; and Enrique Seira, Taxing to Reduce Obesity, (3) Allcott, Lockwood, and Taubinsky, working paper, June 2016, https://bit. “Regressive Sin Taxes.” ly/2kJwx1V; and (2) O’Connor, “Mexican 41. See (1) Kansagra et al., “Reducing Soda Tax.” Sugary, e61-e64.; and (2) Tamara 49. American Beverage Association, Dumanovsky et al., “Changes in Energy “The Economic Impact of Philadelphia’s Content of Lunchtime Purchases from Fast Beverage Tax,” December 2017, https://bit. Food Restaurants after Introduction of ly/2GsBcLa. Calorie Labeling: Cross Sectional Customer 50. American Beverage Association, Surveys,” BMJ 343 (2011): d4464, https:// “Tagged: Soda Tax,” accessed August 26, bit.ly/2m1qcyO. However, although people 2019, https://bit.ly/2lZ7JTE. purchased fewer sugary drinks, their 51. See (1) American Heart Association, total calorie intake was about the same, “Support for Taxing Sugary Drinks by Sugar indicating people get their sugar from other Content,” December 12, 2016, https://bit. sources. ly/2m43yWw; and (2) Natalie Muth et al., 42. Anahad O’Connor, “Mexican Soda “Public Policies to Reduce Sugary Drink Tax Followed by Drop in Sugary Drink Sales,” Consumption in Children and Adolescents,” New York Times Blog, January 6, 2016, Pediatrics 143, no. 4 (April 2019): https://nyti.ms/2kQFWEE. e20190282, https://bit.ly/2kuUSs8. 43. “Task Force on Fiscal Policy for 52. Norton Francis, Donald Marron, and Health.” Kim Reuben, “The Pros and Cons of Taxing 44. Selvi Rajagopal, Anne Barnhill, Sweetened Beverages Based on Sugar and Josh Sharfstein, “The Evidence—and Content,” December 2016, Urban Institute, Acceptabilit—of Taxes on Unhealthy Foods,” https://tpc.io/2mlrsNu.

10 SHOULD THERE BE A SODA TAX?

53. Hamza Ali, “Sugar Taxes Are AUTHOR Changing Tastes, Even If Coke Classics Is the Same,” Bloomberg Law, January 2, 2019, Joyce Beebe, Ph.D., is a fellow in public https://news.bloombergtax.com/daily- finance at the Baker Institute. Her tax-report-international/sugar-taxes-are- research focuses on tax reforms in the changing-tastes-even-if-coke-classic-is- U.S. and computable general equilibrium the-same. modeling of the effects of tax reforms. Her 54. (1) Anna Amir, “Fizzy Fun: Soda other research interests include wealth Producers Will Refresh Product Lines to Curb accumulation over a person’s lifetime and, Falling Demand,” IBISWorld Industry Report generally, how public policies influence 31211a, August 2019, https://bit.ly/2kuyqPQ; decision-making. and (2) IBISWorld, IBISWorld Business Environment Profile: Per Capita Soft Drink Consumption, November 2018, https://bit. ly/2lZgfSC. 55. For example: (1) Sarah Kliff, “A New Poll Shows Why It’s So Hard To Pass A Soda Tax,” Vox, May 6, 2016, https://bit. ly/2m4JNOD; and (2) Helena Bottemiller Evich, “Politico-Harvard Poll: Majority Support Soda Taxes to Fund Pre-K Health Programs,” Politico, September 21, 2017, https://politi.co/2kIJWY4. 56. Sarah E. Gollust, Colleen L. Barry, and Jeff Niederdeppe, “Americans' Opinions about Policies to Reduce Consumption of See more Baker Institute Reports at: Sugar-Sweetened Beverages,” Preventive www.bakerinstitute.org/baker-reports Medicine 63 (June 2014): 52-57, https://bit. ly/2m3SuIZ. This publication was written by a researcher (or researchers) who participated in a Baker Institute project. Wherever feasible, this research is reviewed by outside experts before it is released. However, the views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.

© 2019 Rice University’s Baker Institute for Public Policy

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy.

Cite as: Beebe, Joyce. 2019. Should There Be a Soda Tax? Baker Institute Report no. 10.07.19. Rice University’s Baker Institute for Public Policy, Houston, .

https://doi.org/10.25613/zhsg-4e56

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