A nationwide tax on soda? Economists say it would be good for the country, and here’s their ‘optimal’ rate.
The group says its research is the first to weigh several factors, including tax revenues, health outcomes, effect on health-care costs, the impact on low-income residents, and the enjoyment people get from soda.
A federal tax on soda could benefit the public good, according to an economic analysis being released Monday.
“What we’re trying to do is evaluate whether soda taxes are good or bad overall for society,” said Dmitry Taubinsky, an assistant professor of economics at the University of California-Berkeley, and one of the authors of the paper.
A national tax may seem like an unlikely prospect to Philadelphians, who are familiar with the ongoing controversy over the city’s 1.5-cent-an-ounce tax on sweetened beverages. The tax, which funds pre-K, community schools, and the Rebuild program to improve libraries, parks, and recreation centers, is a key issue in Tuesday’s primary election for mayor and City Council.
But Taubinsky, along with economists from the University of Pennsylvania and New York University, developed a cost-benefit analysis and suggested that a federal tax on soda at a rate between 1 and 2.1 cents an ounce would be the “optimal” tax with the greatest public benefit.
Other research has looked at whether soda taxes reduce consumption or help improve health outcomes. Taubinsky said his group’s research is the first to weigh several factors together, including tax revenues, health outcomes, effect on health-care costs, the impact of soda taxes on low-income residents, and the enjoyment people get from soda that makes them likely to drink it even when they know it’s unhealthy.
Analyzing those factors and calculating a rate that would result in the greatest benefit, they concluded that a national tax on soda would yield as much as $7 billion a year in net welfare to society.
With a national levy, they said, people in Philadelphia couldn’t escape it by buying soda elsewhere. But if soda taxes are passed only on local or state levels, the analysis said, rates should be lower than the suggested national rate.
“The issue is just that if Philadelphia imposes a soda tax but the neighboring cities do not, then people might engage in cross-border shopping," Taubinsky said. “That is why we also think that instead of implementing taxes in a piecemeal city-by-city basis, it would be best if we did them larger-scale, at a state level or, even better, at a national level.”
The economists also examined whether soda taxes are regressive. Opponents of the tax — including Sen. Bernie Sanders, who weighed in when Philadelphia was considering its tax in 2016 and he was running for the first time for the Democratic presidential nomination — say it places a greater burden on low-income taxpayers.
The research was based on taxing sugar-sweetened beverages only, not diet sodas or other artificially sweetened drinks, which are included in Philadelphia’s tax.
“We actually find that the taxes are not so regressive, because even though low-income people do spend more money on soda, low-income people are also the ones who are most likely to report that they drink soda more often than they should,” Taubinsky said.
Mike Dunn, a spokesperson for Mayor Jim Kenney, said the health benefits of Philadelphia’s tax “have always been secondary to the primary goal" of funding important city programs.
“But this new study clearly shows that those health benefits lead to a significant economic benefit. They are a ‘net good’ for the economy,” Dunn said. “More importantly, it shows that low-income people are likely to see the greatest benefit.”
Anna Adams-Sarthou, a spokesperson for the beverage association-backed Ax the Philly Bev Tax Coalition, said many Philadelphians avoid the tax by leaving the city to do their shopping, as noted in the study. Despite the study’s assertion that the tax is not regressive, Adams-Sarthou said “beverage taxes hurt working families, small local businesses and their employees.”
The study, which was peer-reviewed and will be published in the Quarterly Journal of Economics, was released as a National Bureau of Economic Research working paper. The research was funded by the nonpartisan Alfred P. Sloan Foundation.
The researchers said their analysis of soda taxes could be applied to other so-called sin taxes, such as taxes on cigarettes and alcohol, which can also increase social welfare by discouraging consumption.