On Revenue and Referenda: Soda Taxes


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Voters in Albany, Oakland and San Francisco, Calif., as well as Boulder, Colo., will soon decide whether their cities should tax soda and other sugar-sweetened beverages. Proponents of sugar taxes are touting these ballot measures as public health initiatives that would reduce excess consumption of sugary drinks linked to obesity, type 2 diabetes, and tooth decay. Similar taxes were enacted in Berkeley, Calif., in 2014 and in Philadelphia, Pa., earlier this year.

You can read more about the advantages and disadvantages of taxing sugary drinks in our new report, The Short and Sweet on Taxing Soda.

The ballot measures would levy an excise tax ranging from 1 to 2 cents per ounce on producers and distributors. A 12-pack of 12-ounce sodas that costs $4 now would be $5.44 after the tax in the California cities and $6.88 in Boulder. The tax would be applied to sodas, energy and sports drinks, sweetened iced teas and lemonades, and juices with added sugar. It would not apply to diet sodas, milk products, naturally sweet beverages (such as 100 percent fruit or vegetable juice), meal replacements, baby formula, drinks taken for medical purposes, or alcohol (which is subject to a separate tax).

The battle over soda taxes has drawn big money on both sides of the campaign. California leads the country in campaign contributions for ballot initiatives, and the Bay Area soda tax measures have drawn nearly $14 million to campaign initiatives. Opponents of the taxes, largely funded by the American Beverage Association, have spent $10 million on television ads, while supporters, including former New York Mayor Michael Bloomberg, spent $3.7 million in San Francisco and Oakland.

While proponents of the taxes argue that they are necessary public health measures, opponents counter that the taxes are regressive and will hurt low-income communities. They also stress the taxes will hurt small retailers who, they claim, will have to raise the price of all their products to cover the new tax. Preliminary interviews from a UC Berkeley researcher examining the impact of Berkeley’s tax did not identify any retailers who reported raising prices of non-food items to cover the beverage tax. And Albany’s measure specifies that the tax exempts “small retailers.”

Many campaigns against the taxes have framed them as a “grocery tax” and suggested that lawmakers may levy taxes on other food products later if this is enacted. This is misleading because first, taxing other groceries wouldn’t achieve the public health goals of these measures, and secondly, most states that don’t tax groceries already exclude soda from that exemption. This means soda is already subject to the alleged “grocery tax” by being included in the general sales tax base.

The public health principle behind taxing sugar-sweetened beverages is the same as taxing cigarettes or other so-called vice products. A price increase should decrease consumption, thus decreasing the negative health outcomes associated with consumption.  But the link between sugary drinks and obesity or diabetes isn’t as straightforward as the link between tobacco and cancer. Many other factors, such as family history and physical activity, determine a person’s likelihood for obesity or diabetes. Further, although sugar-sweetened beverages are responsible for most of the calories from sugar consumption and the body digests liquid sugar differently than sugars in solid foods, sugary drinks represent only a small portion of most people’s total daily caloric intake.

Despite their public health goals the ballot measures in California cities are not well targeted to reduce sugar consumption. The taxes are determined by the calorie content of drinks rather than sugar content.  If the public health goal is to reduce sugar consumption, then sugar content should determine the tax.

A similar ballot measure in 2014 failed in San Francisco. Although the measure received a majority of the vote, it fell short of the required two-thirds majority. This year’s measure will only require a simple majority vote to pass. If passed, San Francisco projects the tax will generate $15 million annually and would make it the second largest U.S. city with a tax on sugary drinks.

If all three California cities pass their ballot measures this year, more than 20 percent of Bay Area residents could expect to pay more for sugar-sweetened beverages. The measures in Albany and Oakland are expected to generate $223,000 and $6 million annually for the cities’ respective general funds. The city of Boulder estimates the tax would generate $3.8 million in revenue to be used for a variety of public health campaigns to combat obesity.

As our report outlines, soda taxes like other consumption taxes are inherently regressive. But the excess sugar content in sugary sweetened beverages have public health implications, and new research suggests soda taxes can improve public health and reduce healthcare spending. Voters will have to weigh all of this at the polls in November.

Read the Short and Sweet on Taxing Soda

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