Soda is on the ballot this fall. Berkeley residents will get a chance to vote on a proposed 1-cent-per-ounce tax on sugary drinks in November. The “soda tax” is essentially an excise tax designed to limit consumption. The big question is: do they work? In this post we’ll take a look at the rationale behind this type of excise tax and whether or not they’re effective.
Sin Tax
This form of excise tax has a more diabolical name – “sin tax.” As the moniker implies, a sin tax is placed on something deemed socially offensive. Cigarettes, alcohol and gambling fall into this category. Soda made it on the list because of the current obesity epidemic plaguing the United States. The traditional belief held that the more expensive a product or service, the less likely it would be purchased. The current thinking focuses more on the impact felt by others. A good example is taxing cigarettes because of the risks associated with second hand smoke.
Do Sin Taxes Work?
The answer is mixed. Research shows consumption does go down as the prices goes up – but not by much. Those who smoke don’t quit, they just smoke less. A study published by the American Journal of Agricultural Economics determined a 6-cent tax on a 12-ounce can of soda would produce an average reduction of 5,800 calories per person every year. Also, sin taxes are regressive, meaning they hurt the poorest of the population.
These kinds of taxes are hot button issues because they revolve around choice. I view the argument somewhat differently, of course, because I’m in the throes of watching states tax consumers. Step back and consider the context. Many states and cities are still struggling financially. Taxing soda and yoga are ways to generate revenue. These taxes may be a great patch, but they don’t solve long-term problems. Sound fiscal planning that addresses flux in the market is a better, less controversial approach. In the end, tax policy should have realistic goals and honest expectations about how those goals will be achieved.
