Taxing Sweet Drinks

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Updated on March 31, 2014

Earlier this month, The New England Journal of Medicine featured an opinion piece about taxing nutritionally empty, sweetened beverage items. The article, entitled “Ounces of Prevention – The Public Case for Taxes on Sugared Beverages,” specifically highlighted the proposal considered but recently dropped in New York State. Governor Patterson of New York late last year proposed an 18% sales tax on soda and fruit beverages containing less than 70% juice. In Maine a wholesale tax on sodas and the sweetening syrups used for their production had been implemented by lawmakers but was recently overturned by voters. With these proposals and related studies in the spotlight, public officials and health experts have increasingly been pressing the beverage tax possibility.

Governor Patterson and many proponents across the country call their proposals “obesity tax” programs because recent research suggests that sweetened drinks contribute significantly to the country’s obesity epidemic. (Yes, little surprise…) As the NEJM writers suggest, sweet drinks “may be the single largest driver of the obesity epidemic.” Studies and research reviews have illustrated the link between sweet beverage intake and increased BMI, diabetes, and overall nutrient deficient diets.

Government and many public health officials cite not only the human toll of these trends but the financial burden to State health programs. They see ample justification for including sweet beverages in the current “sin tax” model along with cigarettes and alcohol.

On the other end of the issue is the relative unpopularity of these taxes. Although many who smoke or drink may not think favorably about taxes on cigarettes and alcohol, the public as a whole generally supports (or doesn’t actively oppose) these products’ continued taxation. In the case of cigarettes, fewer people smoke these days, and the health risks are well known. In the case of alcohol, support likely stems from both public health concerns and in some cases certain moral traditions or perspectives surrounding alcohol (hence the “sin” tax concept…).

But the case for sweet drinks (and snacks) is more complicated. For one, these “sweet” (or snack) categories can be much harder to define. A cigarette is a cigarette. (Although in most cases, tobacco products as a whole are subject to tax.) Alcoholic beverages are just that. (Except medications that contain alcohol for medicinal purposes…) As for sweet drinks, tax-related definitions have shifted much over the years. In certain states and proposals, only sweetened and carbonated beverages have been included. More recently, the definition has expanded to incorporate non-carbonated beverages that contain sweetener and are less than at least 50% juice. It can be a fine and seemingly arbitrary line.

The second stumbling block to taxing sweet beverages (or snacks) involves their universality. Relatively few people smoke these days – at least compared to earlier decades. However, sodas, fruit “flavored” beverages, and sport/energy drinks have earned no such stigma. They’re everywhere, and the “everyman”/-woman drinks them. At the voting booth (in ballot measures like Maine), these consumers don’t take kindly to anyone raising the price on what many of them consider grocery staples.

As the NEJM authors say, there are two cases to be made with a selective taxation program. On one hand, a tax can be implemented primarily for revenue purposes that can either supplement the general State budget or be directed toward health programs. (In the case of New York, the intended revenue would have gone to health services in the State.) Cigarette taxes, for instance, are justified by the substantial cost imposed on state governments in treating smoking disease (lung cancer, emphysema, etc.) and by the anti-smoking (preventative and cessation) programs these tax revenues can fund. Supporters of a sweet beverage tax ask why their programs can’t be seen in the same light – with tax revenues offsetting costs related to diabetes treatment and similar education programs. (Not to mention children’s dental programs. Fair warning: gross pictures.)

On the other hand, a selective tax is intended to decrease consumption of the targeted products. Studies suggest a mixed picture on changing consumption habits. The NEJM authors cite research from both Yale University and industry publications that show significant reductions in consumption (e.g. Yale – a 10% cost increase correlated with 7.8% less consumption). However, a PricewaterhouseCoopers report (PDF) from 2005 (prepared for the Grocery Manufacturers Association) suggests that typical selective “snack” taxes have little impact on consumption. The impact may rest primarily in the amount of increase. Small cost increases may not register with consumers. However, larger increases (such as the 18% rate that Governor Paterson of New York proposed) are likely to influence consumer purchases.

Critics attack these sweet tax proposals from several angles, some more compelling and relevant than others. We understand the frustration surrounding seemingly random legal definitions of the potentially taxed products. And we can see how this kind of tax program would create its own costly red tape for state governments and merchants, especially small businesses (who must devote a higher ratio of their time and profit to tax-related administrative duties) and those merchants whose business includes multistate sales. There are plenty of solid arguments working against the concept of selective taxes.

However, some criticisms (pardon us) we take issue with. Sure, we’re in a recession and it’s a bad time for businesses to take on additional burdens. Some argue that beverage companies could suffer a further downturn in sales. On the other hand, these companies have – for years or decades – made the bulk of their money marketing unhealthy products/lifestyles and contributing to the public health burden. Arguments about paternalism aside, there’s inevitably the issue of the large “public” medical bill handed to all of us, whether we’ve been responsible and taken care of ourselves or not. If more of the bill can be shouldered by those who manufacture, sell and purchase the offending pseudo food and beverage items, maybe that’s not such a bad idea.

Likewise, we have little patience for the critics who pull out the violins in the name of tax “regressiveness” – that the selective sweet tax will “hurt” poor people more. As the aforementioned PricewaterhouseCoopers report cites, households earning below $10,000 annually spend a considerably larger percentage of income on snack foods than a household bringing in $70,000+ (11.9% compared to 1% in 2004). It’s a sad picture, yes, but not for the reasons these critics see. Pardon us for interpreting some convenient enabling behind these critics’ sympathy….

With State budgets increasingly in the red, we’ve likely not seen the last of the beverage tax proposals. (With the popularity of recession diet “comforts,” we’ve also not seen the last of the public pushback.) We acknowledge that the tax topic is a sticky wicket, to be sure. But we thought we’d ask you for your opinion: should sweet beverages be added to an already existing “sin tax” system? What impact do you think it would or wouldn’t have on consumption/public health/product perception in the current economy? Other thoughts?