Wednesday, November 17, 2010

Taxing Soda to Close the Deficit

A bipartisan panel tasked with finding a way to reduce the deficit has latched on to the “Soda Tax.” The problem with sin taxes is this: they are designed to increase the cost of a specific “bad thing,” like smoking, drinking, or in this case, consuming sugary beverages. The aim is to raise revenue, and to dissuade people from partaking of the “bad thing.” The problem comes in when people actually stop buying the taxed thing. Fewer people buying, means less tax revenue raised. This is exactly why sin taxes cannot be depended on to fund anything long term. I’m hard pressed to find an example of a sin tax that actually raised as much revenue as was projected.


The second bipartisan panel to issue a big deficit report has come out in favor of a tax on soda and other sweetened beverages.

The panel — chaired by former Senator Pete Domenici, a Republican, and Alice Rivlin, a Democrat and former White House budget director — said a soda tax would “help reduce long-term health care spending to treat obesity-related illnesses – including diabetes, heart disease, cancer, and stroke.” The tax would be “an excise tax on the manufacture and importation of beverages sweetened with sugar or high-fructose corn syrup.”

The tax would raise more than $15 billion in 2015, the panel estimated — similar to the amount of savings the government might get from eliminating all earmarks.

We’ve written about a soda tax before here at Economix. The beauty of it is that it falls on the very behavior — the gallon-a-week-per-person national soda habit — that imposes costs on society: namely, higher medical bills. Unlike so many other beverages and foods, Coke and Pepsi have no nutritional benefit, as food researchers often emphasize. Yet per-capita consumption of sugary drinks has nearly tripled in the last 30 years, accounting for about half the total rise in calorie intake over that period.

A big reason Americans are drinking more soda is that it’s so much cheaper than it used to be. The American Heart Association, which has also endorsed a soda tax, notes that children and teenagers are especially price-conscious consumers and are also especially big soda drinkers today.

Blog Archive