Background
The obesity epidemic affects one-third of U.S. adults. From 1977-2001, the number of obese adults doubled. In that same time period, the energy intake from SSB (sugar sweetened beverages) increased by 135% and the calories in beverages increased by over 50% (Kansagra 2015). Excess consumption of sugar sweetened beverages like soda and fruit juice have been linked to weight gain and diet related disease, prompting government officials at federal and state levels to begin debating potential policies addressing this issue. Currently, SSB are not taxed at a federal level, but some cities have implemented taxation on their local level.
Facts (USDA)
Sugared sweetened beverages (SSB) make up 10-15% of calories consumed in adolescents
The USDA advises against exceeding 10% of daily calories from added sugar
The intake of calories from beverages has increased by approx. 30%
Consumption of SSB is linked to obesity and Type II diabetes
Rationale
The overconsumption of SSB is a direct result of negative externalities
Obesity, diabetes, tooth decay
Overall higher costs for the national health service
The social cost is greater than the private cost
While there have not been explicit studies stating the relationship between obesity and sugared beverage consumption, it is a widely known fact that a higher caloric intake will result in weight gain. As seen in Figure 1 taken from the USDA, beverages account for 47% of added sugars the average diet, with 39% of said beverages being sugar-sweetened. Combined with Figure 2, which highlights the vast difference in the recommended intake of added sugars and the actual average amount consumed, it is clear that while sugar sweetened beverages have had an affect on America’s rising obesity levels.
Proposed and Existing Policy
Local Level
Several cities have implemented a taxation on sugared beverages, with Berkeley, CA alleging a “21 percent drop in the drinking of soda and other sugary beverages” (Anwar 2016). However, due to county and city limits, citizens are only taxed within a certain area and are able to drive to buy tax free SSB; this effect would not be an issue if a tax was implemented on a state or federal level. Local businesses claim to have had to implement layoffs due to financial loss from the “15-45 percent sales drop” (Bird 2018).
Eight cities have taxation on SSB as of 2018
Taxes range from 1 to 2 cents per ounce
Revenue is used at the discretion of the city
Used for education and public health in Berkeley
Pay off budget deficit in Chicago/Cook County
State Level
There is currently no existing policy regarding SSB at a state level. Several states are considering implementing SSB taxation, yet there continues to be public resistance. Reasoning for dismissal of the tax included:
Government interference should not exist in the market; people should have the freedom to follow the dietary lifestyle they choose
The belief that the loss of demand from sugary drinks will lead to job loss
It is unfair on lower income groups as it takes away a larger portion of their income
In 2010, New York proposed a state-wide soda tax, but it was widely shot down and criticized by distributers; lobbyists spent $9M to insure the bill did not pass (Stuckler 2009). The tax:
Proposed a 1 cent per ounce taxation on SSB
Expected to reduce consumption by 13% (2 servings a week)
Supported by over 60 health organizations
Federal Level
There is currently no existing policy on sugared beverages at the federal level; however, the federal taxation on tobacco serves as an often cited example for reasoning behind federal taxation. Tobacco taxation originated from health concerns, similar to SSB taxation. Tobacco excise taxes are enforced by the federal government and add $1.01 to each pack of cigarettes, while states have the option of furthering state or excise taxes within their borders. Taxation on tobacco is proven to (Levy 2000):
Decrease smoking, especially in adolescents
Reduced the number of premature deaths that would have been caused by smoking
Increase in revenue and decrease in tobacco related health costs
Recommendation and Expected Outcome
Berkeley, California is the first city to have implemented the soda taxation in its’ city in 2015. A UC Berkeley study showed a 21% drop in SSB consumption, particularly in low income communities. Those surveyed also reported a 63% increase in water consumption, and only 2% of residents reported shopping in nearby cities without the tax (Anwar 2016).
Facts about the tax:
Excise tax at 1 cent per ounce
Tax is paid by distributers and then factored into the shelf price
Assigned panel of health care workers, educators, and nutritionists determine where the revenue from the tax will be used (approx. $2.5M in revenue so far)
Covers soft drinks (not diet), fruit-flavored drinks, energy drinks, and caffeinated drinks
Due to Berkeley’s success in reducing sugared beverage consumption, my recommendation is to develop a federal policy similar to that of the excise tax on tobacco, based on the policies Berkeley implemented.
Expected outcomes:
Decrease in sugared beverage consumption
Decrease of social cost in regards to weight related health care
Raise revenue to promote knowledge on health and nutrition
Overall improvement in health
Possible unintended consequences:
Job loss
Unlikely as demand will shift to other non-alcoholic beverages
Jobs in health education will be created as a result of initiatives from revenue
Summary
Effectiveness: Excise taxation has been proven to reduce SSB consumption.
A one cent tax at the federal level, in comparison with the city of Berkeley’s tax, will decrease the amount of sugared beverages consumed in the U.S. while also decreasing obesity and obesity related diseases in accordance with the majority of studies. In the cities that a taxation has been implemented in, consumption has been reduced and public health awareness has increased.
Efficiency: Revenue will be put back into educational health/nutrition programs.
The revenue generated from the taxation is often a subject of uncertainty; however, a board of health and education experts is a practical solution that will insure the proposed policy reduces deadweight loss. The revenue from the taxes is put back into programs and initiatives dedicated to health/nutrition education, childhood obesity prevention, and other programs dedicated to increasing the overall health of citizens. These programs and initiatives will also create jobs, easing concern about job loss over decreased sales of SSB.
Equity: Minor distributional implications or consequences will be erased due to decrease in SSB consumption.
The main distributional implication stemming from the taxation policy is that those stemming from a lower income will be more affected by the tax because it would take a higher portion of their income. While this is true in that it would have more of an effect on said portion of the population, the simple solution to this is to move to untaxed, unsweetened beverages and therefore reduce the consumption of SSB and fulfill the goal of the policy.