The Bittersweet Truth about Taxing Soda
What are soda taxes and why do Americans love to hate them?
Taxing Soda to Disincentivize Consumption
The concept of taxing indulgent — perhaps socially undesirable — products is a curious idea.
While we generally think of taxation as a way for governments to fund public goods like roads and public schools, sin taxes serve a different purpose. In contrast to income or property taxes that are explicitly designed to raise revenue, sin taxes exist to deter individuals from engaging in physically and socially harmful behaviors like drinking alcohol, smoking cigarettes, or polluting.
When I tell people that I study soda taxes, I typically get one of two types of responses back. One, what’s a soda tax? And, two, is that that “Bloomberg thing”?
In fact, the 2012 Bloomberg-led initiative called the Portion Cap Rule is quite a bit different than a classic tax on sugar-sweetened beverages. Bloomberg’s proposed amendment to the New York City Health Code imposed a 16-ounce cap on sugary beverages sold by food service establishments.
In contrast, the soda tax I research is technically referred to as a tax on sugar-sweetened beverages (SSBs) since it includes soda along with sports and energy drinks, non-100% fruit drinks, sweetened water, and pre-sweetened coffee or tea. Under this definition, drinks such as regular Coca-Cola, Gatorade, bottled Starbucks Frappuccinos, and Red Bull are all subject to the tax.
Seven U.S. local governments have passed laws levying a volumetric excise tax on SSBs: Boulder, Colorado; Philadelphia, Pennsylvania; Seattle, Washington; along with Albany, Berkeley, Oakland, and San Francisco in California. The tax rates vary slightly; most cities levy a penny per ounce tax, although Boulder, Philadelphia, and Seattle levy two cents, 1.5 cents, and 1.75 cents per ounce taxes, respectively. The city of Philadelphia is the only jurisdiction that, in addition to SSBs, also taxes artificially-sweetened beverages (ASBs) made with zero-calorie sweeteners such as aspartame, sucralose, or stevia.
In contrast to ad valorem (Latin for “according to value”) taxes like sales tax and value-added tax which are fixed percentages, specific (or per-unit) excise taxes are fixed currency amounts that depend on the quantity of the items. Moreover, specific excise taxes are indirect, meaning they are levied on the distributors. The distributors then pass that tax burden onto the retailer, who then passes it onto the customer through incremental price increases. Excise taxes levied on SSB distributors provide a jurisdictional basis for the taxes, meaning anyone living within the borders are subject to the tax. This is in contrast to an excise tax levied on the manufacturers which would only affect a small number of localities where the manufacturing occurs.
Ironically, the long-term success of the tax would be to generate little to no income since the paramount goal here is to influence behavior and reduce SSB consumption. Simply put, if the tax works the way it’s intended to, then the higher price on sugary beverages will dissuade buyers from choosing sodas or greatly decrease the amount of soda they regularly consume.
Theoretically, a high enough tax rate would lead to a threshold effect whereby people would substitute sugary beverages with water or nothing. That said, a goal of zero SSB consumption is unrealistic. Adjusting macro-level behavior to a small — but still significant — market change can be a long process. So, in the years proceeding the implementation of a sugary beverage tax, success generally depends on how much revenue it generates, as well as how much the tax reduces SSB consumption.
In Berkeley, for example, the tax has generated over $5 million since its implementation in March 2015. These funds are allocated into the City Council’s General Funds where the money is used to fund community grants for public health organizations dedicated to reducing SSB consumption and/or improving citizens’ health. Causal inspection suggests an inverse relationship between taxes and consumption. In other words, as taxes on SSBs go up, consumption goes down.
Studies support this claim: Berkeley’s penny-per-ounce excise tax reduced SSB consumption by 21% and increased water consumption by 63% in the four months after its implementation. SSB reduction was especially pronounced in low-income and minority communities. In the three years since Berkeley’s SSB tax went into effect, the city has seen persistent reductions in soda consumption to the tune of over 50%.
Soda Industry’s Role in Perpetuating SSB Consumption and Obesity
Despite the overwhelming success of taxing sugary drinks, one question still remains: why do so few cities in America have them?
One need only turn on the television, read the news, or go grocery shopping to understand why.
The soda industry and its main trade association, the American Beverage Association (ABA) spend hundreds of millions of dollars each year advertising their products on a panoply of mediums: print, TV, radio, digital, social media, billboards, etc. They sponsor sporting events and scholarships, partner with celebrities and influencers, and donate large amounts of money — all to popularize their brands and gain influence. Soda companies have perfected the time-honored marketing strategy of selling not just the products, but the “experience” of drinking their sugar-laden beverages.
And, to their credit, these tactics have worked phenomenally well for them. Coca-Cola and PepsiCo are responsible for creating some of the world’s most highly recognizable brands and products. However, Big Soda’s success comes at a steep cost: over 70% of American adults are considered overweight or obese.
In the United States, obesity specifically afflicts 39.8% of adults and nearly 20% of youth aged 6–11 years. Minorities and low-income individuals suffer disproportionately from obesity. The prevalence of obesity is 47% for Hispanics and 46.8% for blacks compared to 37.9% for whites. 39% of low-income groups are obese compared to 31.2% for high-income groups. This disparity is especially pronounced for women who have an obesity prevalence rate of 45.2% for the lowest income groups compared to 29.7% for the highest.
Additionally, obesity is a highly comorbid disease. Obese people are more likely to have Type II diabetes, insulin resistance, respiratory issues, heart disease, and psychological problems. The financial burden of obesity is another byproduct of the growing obesity epidemic: healthcare costs for obese individuals are $1,429 higher per year funded largely in part by taxpayer money.
Food and soda addictions have been established in the literature. That said, it’s important to understand how Big Soda and Big Food both played substantial roles in the obesity epidemic’s genesis. Soda companies’ aggressive and manipulative marketing techniques directly contribute to sugar addiction and its potentially fatal health effects. For an illuminating read, see this article about how Big Soda pays particular attention to their low-income and minority markets.
The implications of Big Soda’s intentional efforts to target minorities are particularly troubling considering blacks are 1.4 times more likely to be overweight and twice as likely to be diagnosed with diabetes as whites. Hispanic Americans are 1.2 times more likely to be overweight than white Americans and twice as likely to suffer from diabetes. Big Soda’s relationship with minorities has historically been exploitative. Soda companies bombard low-income, minority communities with advertisements. Then, they blame the individuals themselves for being obese or sick.
One statement from the ABA acknowledged obesity, but attributed the epidemic to an imbalance of caloric input and output (i.e., “people should be exercising more”) or simply due to their genetics (i.e., “it’s not our fault”).
How could such a small portion of calories possibly be solely responsible for obesity. It simply defies logic. In reality, no single food, beverage or ingredient is a unique contributor to obesity. Obesity is a complex problem that is caused by a variety of factors including overall diet, physical activity and genetics. Wrongly demonizing one source of calories misleads people who are trying to achieve a balanced lifestyle and diverts us from real solutions.
The non-white market is very lucrative for Big Soda: among men and women, non-Hispanic blacks and Hispanics consume a higher percentage, on average, of total daily calories from sugar-sweetened beverages compared with non-Hispanic whites and Asians. In an analysis of self-reported survey data on the prevalence of sugary beverage consumption, blacks were more than twice as likely as whites to say they “frequently” consume sugary beverages.
The soda industry also engages in nefarious practices to boost profits and rebut its role in the obesity epidemic. The soda industry regularly funds scientists and doctors to release spurious reports finding no link between SSB consumption and weight gain. An analysis of financial conflicts of interest and reporting bias revealed that 83.3% of published systematic reviews in the SSB field with a food industry conflict of interest found no positive relationship between SSBs and weight gain.
Moreover, the soda industry and specifically the ABA pour millions of dollars into front groups appearing to represent the best interests community all the while espousing junk science and decrying the “nanny state.” These “astroturf” (a term for fake grassroots) organizations present purposefully misleading narratives that prey on consumer anxieties and discredit science while preserving the soda industry’s clean image.
The soda industry regularly recruits low-income black and Hispanic people to work for these astroturf street teams, holding signs and passing out flyers opposing proposals to tax sugary beverages. These tactics shield the industry from bad publicity and frame the fight as a battle between more than just industry versus consumer. When El Monte, California was considering an SSB tax initiative in 2012, the ABA recruited black and Hispanic people from its large population to carry signs highlighting the expected higher cost of horchata and agua fresca — traditional Hispanic drinks that would also be taxed under the proposed SSB legislation.
The implications of Big Soda’s intentional efforts to target minorities are particularly troubling considering blacks are 1.4 times more likely to be overweight and twice as likely to be diagnosed with diabetes as whites. Hispanic Americans are 1.2 times more likely to be overweight than white Americans and twice as likely to suffer from diabetes.
Soda Taxes in Practice
That said, soda taxes are by no means a panacea. Soda taxes alone will not solve the obesity epidemic and the deleterious health consequences that come from consuming too much sugar. However, taxing non-essential, non-nutritive products like sodas and other sugary drinks offer a promising first step towards a healthier America.
In Philadelphia, for example, a gallon of Arizona Arnold Palmer Lite Iced Tea & Lemonade that previously cost $2.50 now costs $4.42 — a cost increase of 77%. Indeed, taxes on sugary beverages are quite salient in the minds of customers who begin substituting their typical sugary beverage purchases for water and other non-taxed, typically healthier, items. These micro-level decisions add up. If consumers still decide to buy the taxed sugary drinks, that is absolutely their prerogative. Regardless, the tax revenue generated from those purchases can be put toward funding both preventative and remediating public health programs.
Berkeley, for instance, administers their tax revenue through Healthy Berkeley which allocates funds to local organizations dedicated to promoting and educating community members on healthy eating and drinking practices.
While studies have illustrated the success of SSB taxes in multiple cities, there still remains a lack of research on how to convince citizens to actually vote in favor of such legislation. Ballot measures are the preferred political strategy for passing SSB taxes instead of stand-alone legislation taken up by the city council or written into the city’s budget. Contrary to most legislation that is proposed and passed by elected representatives, ballot measures are an example of direct democracy where eligible citizens vote directly for or against the legislation. Ballot measures, thus, necessitate ample public support and utilize grassroots techniques such as canvassing, lobbying, and fundraising.
Consequently, my research focuses on finding the most effective messaging frames to generate support for this tax. In other words, which pro-tax arguments resonate the most with potential voters? Public health campaigns, in particular, require a clear, strategic message about why intervention is necessary. In ballot measures especially, a persuasive and coordinated approach to shore up support is a strong predictor of success.
Why Soda Taxes?
I was initially drawn to the topic of sin taxes, and soda taxes in particular, after discovering the world of behavioral economics à la Nudge and Freakonomics. But before I became enlightened about loss aversion and US tax policy, I began the thesis writing process intent on writing about a pressing public health problem.
The idea for a paper centered on the intersection of public health and public policy arose in high school. As a bored teenager with a Netflix account, I binge-watched dramatic exposés about the food and beverage industries. I devoured documentaries decrying the evils of sugar, bread, meat, dairy, you-name-it. I was inundated with compelling reasons as to why humans should go vegan or eat all meat, or why raw food, juicing, low-sodium, low carb, etc. diets were best.
The rationale behind these various diets perplexed me; I was especially fascinated by how each diet dogma justified their method as the best.
“These documentaries seem legitimate,” I thought, “It looks like these people were successful on the X, Y, Z diet.”
So, what was true? Is there actually one superior diet out there? And more, which foods rightfully deserve to be demonized?
Though I only had high-school chemistry and biology in my brain, I searched the Internet for some clarification. Long-story-short, after lots of amateur research and personal experiments with cutting out and adding back in inflammatory foods, I discovered a stubborn addiction to sugar within myself and many of the people I knew. Digging further, I found the notorious study about rats preferring sugar to cocaine. I became even more curious.
When I got to the University of Michigan, I began taking interesting classes related to my major and minor, political science and applied statistics. My junior year — the year I developed my research topic — was when I learned about the rich field of behavioral economics. Through classes on complex systems and experiment design, I realized I wanted to write something quantitative that integrated theories of psychology and political science.
There were two paths I could go: the historical public health one that would surely be more science-focused, or the data-heavy, behavioral economics one with models and significance levels. The idea to conduct a public opinion survey on message frames was borne out of a number of conversations with researchers in various disciplines here at U-M: psychology, communications, political science, public health, public policy, anthropology. Not only am I drawn to the interdisciplinarity of my topic, but I also appreciate how my research is a product of both rigorous qualitative and quantitative work.
Ultimately, I was able to combine my two interests to write an empirically-based guide for public health advocates and policymakers on designing a campaign for a tax on sugary beverages. My next steps involve fielding a nationally representative sample of 1,000 American adults on their attitudes towards certain public health policies and, in particular, frames of SSB taxes.
In light of Big Soda’s aggressive anti-tax campaigns and questionable practices, the importance of a strong, unifying pro-tax message cannot be understated. I am hopeful my research can inform public health campaigns targeting sugar consumption about the best messages that will resonate with their voters. While they might be hard to swallow politically, soda taxes are just one of a number of bittersweet proposals to a healthier America.
