Sugary drink tax
A sugary drink tax, soda tax, or sweetened beverage tax is a tax or surcharge designed to reduce consumption of sweetened beverages by making them more expensive to purchase. Drinks covered under a soda tax often include carbonated soft drinks, sports drinks and energy drinks. Fruit juices without added sugar are usually excluded, despite similar sugar content, though there is some debate on including them.
This policy intervention is an effort to decrease obesity and the health impacts related to being overweight. The tax is a matter of public debate in many countries and beverage producers like Coca-Cola often oppose it. Advocates such as national medical associations and the World Health Organization promote the tax as an example of a Pigouvian tax, aimed to discourage unhealthy diets and offset the growing economic costs of obesity.
Design
Tax design approaches include direct taxes on the product and indirect taxes. Indirect taxes include import/export taxes on sugar or other ingredients before it has been processed and local/regional/international taxes. Sales tax is paid by the person consuming the item at the time of purchase and collected by the government from the seller. VAT is the most common type of tax and is also added on at the time of purchase, at an amount that is dependent on the value paid for the item. The amount of both VAT and sales tax are directly proportional to the amount of money paid for an item and do not consider the volume of food or drink. For this reason, a large item would have less tax compared to a smaller cheaper item.Most taxes on sugar-sweetened beverages are set volumetrically, and that "only three SSB taxes worldwide are proportional to sugar content." The study argued that such volumetric taxes "are poorly targeted to the actual health harms from SSBs," and suggested taxing the amount of sugar in beverages, rather than the volume of liquid accompanying the sugar. A design change such as this has been proposed to "boost a SSB tax's health benefits and overall economic gains by roughly 30%."
Increased taxes on sweetened products have been suggested to promote companies to re-formulate their product in order to keep consumer costs affordable by decreasing use of the taxed ingredient in their product. Government revenues from these taxes sometimes are put towards improving public health services, however this is not always the case.
Some point to substitutes like fruit juice, energy-dense snacks and biscuits as ways a tax on processed sugar in drinks might be limited. Jurisdictions where cross-border shopping is convenient can also have the benefits of the tax reduced as some will buy sugary drinks from areas where they are not taxed.
Regressive vs. progressive tax
The regressive component of the tax is that consumers on lower incomes would spend relatively more up-front due to higher prices than consumers on higher incomes.The progressive components of the tax include both the health savings and benefits to those who are most price-sensitive and the potential for tax revenue to subsidize healthier foods or other priorities for low-income people.
Health concerns related to excess sugar in the diet
is a growing health concern in many developed and developing countries around the world, with 1.6 million deaths directly due to this disease in 2015 alone. Unlike sugar from food, the sugar from drinks enters the body so quickly that it can overload the pancreas and the liver, leading to diabetes and heart disease over time. A 2010 study said that consuming one to two sugary drinks a day increases your risk of developing diabetes by 26%.Heart disease is responsible for 31% of all global deaths and although one sugary drink has minimal effects on the heart, consuming sugary drinks daily are associated with long term consequences. A study found that men, for every added serving per day of sugar-sweetened beverages, each serving was associated with a 19% increased risk of developing heart disease. Another study also found increased risks for heart disease in women who drank sugary drinks daily.
Obesity is also a global public and health policy concern, with the percentage of overweight and obese people in many developed and middle income countries rising rapidly. Consumption of added sugar in sugar-sweetened beverages has been positively correlated with high calorie intake, and through it, with excess weight and obesity. The addition of one sugar-sweetened beverage per day to the normal US diet can amount to 15 pounds of weight gain over the course of 1 year. Added sugar is a common feature of many processed and convenience foods such as breakfast cereals, chocolate, ice cream, cookies, yogurts and drinks produced by retailers. The ubiquity of sugar-sweetened beverages and their appeal to younger consumers has made their consumption a subject of particular concern by public health professionals. In both the United States and the United Kingdom, sugar sweetened drinks are the top calorie source in teenager's diets.
A French study published in 2019 on the British Medical Journal also enlighted a possible link between the consumption of sugary drinks and a higher or increased risk of developing cancer. Even if the researchers were unable to prove a clear causality between the two factors, they stated that their results can be taken as a confirm that "reducing the amount of sugar in our diet is extremely important."
Dental caries, also known as tooth decay or dental cavities, is the most common noncommunicable disease worldwide. Sugary drink taxes have been discussed as a potential means to reduce the health and economic burden of dental caries.
Comparison to tobacco taxes
Proponents of soda taxes cite the success of tobacco taxes worldwide when explaining why they think a soda tax will work to lower soda consumption. Where the main concern with tobacco is cancer, the main concerns with soda are diabetes and obesity. The tactics used to oppose soda taxes by soda companies mimic those of tobacco companies, including funding research that downplays the health risks of its products.Impact
Revenue
The U.S. Department of Health and Human Services reports that a national targeted tax on sugar in soda could generate $14.9 billion in the first year alone. The Congressional Budget Office estimates that a nationwide three-cent-per-ounce tax would generate over $24 billion over four years. Some tax measures call for using the revenue collected to pay for relevant health needs: improving diet, increasing physical activity, obesity prevention, nutrition education, advancing healthcare reform, etc. Another area to which the revenue raised by a soda tax might go, as suggested by Mike Rayner of the United Kingdom, is to subsidize healthier foods like fruits and vegetables.Consumption
According to a 2019 review of research on sugar drink taxes, the taxes successfully reduced consumption of sugar drinks and reduced adverse health consequences due to the increased price of the drinks, which causes the demand for them to drop. Another review of data up to 2019 found the health benefits as being of very low certainty in a one single study applied to Hungarian settings.A 10% tax in Mexico enacted in January 2014 reduced consumption by 12% after one year, said one study that had not yet been peer-reviewed.
A study of the 1.5-cents-per-ounce tax in Philadelphia found actual sales of the affected beverages dropped 46% in the city itself, but when accounting for people traveling to neighboring cities without a tax, overall purchases of the affected beverages dropped 22%.
The way that the tax burden is divided upon the consumer and seller depends on the price elasticity for sugary drinks. The tax burden will fall more on sellers when the price elasticity of demand is greater than the price elasticity of supply while on buyers when the price elasticity of supply is greater than the price elasticity of demand. The price elasticity for sugary drinks is different from country to country. For instance, the price elasticity of demand for the sugary drink was found to be -1.37 in Chile while -1.16 in Mexico.
A 2019 National Bureau of Economic Research paper concluded that sugar drink taxes were "welfare enhancing, and indeed that the optimal nationwide SSB tax rate may be higher than the one cent per ounce rate most commonly used in U.S. cities." A 2019 study in the Quarterly Journal of Economics estimated that the optimal sugar drink tax on the federal level in the U.S. would be between 1 and 2.1 cents per ounce, whereas the optimal tax on the city-level was 60% lower than that due to cross-border shopping. A 2022 systematic review and meta-analysis of studies from around the world found that sugary drink taxes resulted in higher prices of the targeted beverages and a 15% decrease in the sales of such products.
Externalities as a rationale for taxation
The purchase of sugary drinks has significant negative externalities when over-consumption causes diseases like obesity and type 2 diabetes. Depending on the national health care system, a significant portion of these costs are paid by taxpayers or insurance rate-payers; lost productivity costs are paid to some degree by employers.Society as a whole could be worse off if these costs are calculated to be greater than the benefit to the consumers of soda.
A Pigovian tax like a sugary drinks tax, factors these externalities into the price of the beverage. To some degree, this causes people who over-consume soda to pay for health care costs they are causing, which proponents argue is more fair. In theory, this tax could be set at such a level that reduces consumption until the collective private benefit balances the collective costs of poorer health, though this could be accomplished at a lower tax level by using the tax revenue to create childhood nutrition programs or obesity-prevention programs. This would lessen the tax burden on people who consume soda moderately enough not to cause health problems.