Governor Paterson's Soda Tax

Governor Paterson of New York has proposed an increased tax on non-diet soft drinks for two reasons: to increase state income in the face of a budgetary shortfall and to help combat obesity. I think the tax is incredibly misguided for a few reasons.

I am not a fan of "sin" taxes, taxes specifically focused on eliminating or reducing something society dislikes. It's certainly better that we overly tax cigarettes and soda than banning them. By just taxing them more heavily, the effect on consumer liberty is far less constrained. I lose the freedom of buying soda without interference, but I still can get the soda I want. But I find the whole idea of trying to dissuade people from buying something, and punishing them if they do, to be an inappropriate and largely unjust way of funding necessary state programs.

That said, let's get into the specifics of why the soda tax is a bad idea. The soda tax is supposed to do two things: decrease obesity and increase revenue. Obesity should come first, since the tax is proposed as a public health measure.

As I, and many others, can attest to, it's plenty easy to be obese without drinking any sugary soda. The impact of one item, such as soda, is unlikely to have a large effect on obesity. Obesity is complex: it is the product of an interrelation between genetics, consumption and lifestyle. Assuming this program worked to remove all the calories people get from non-diet soda (which would only be plausible if soda were to be banned) the effect is not entirely predictable, and probably would not be especially great.

Is it even better to drink diet soda than non-diet soda? I certainly think so. I probably consume somewhere from 2 to 4 cans of diet soda a day. The evidence is mixed, however. Studies have shown weight loss in those that switch to diet soda, but others have shown no change, or weight gain. The results are not yet in as to whether soda with non-caloric sweeteners like aspartame are better for those trying to lose weight than soda with sugar or high-fructose corn syrup. When I tried the Atkin's diet a few years ago, they advised dieters to avoid both diet and regular soda, because diet soda had been linked to slower weight loss (and of course regular soda is high in sugar). From my understanding of the literature, it seems most likely that if dieters are actively counting calories (or something similar, like Weight Watchers points) diet soda might be helpful, but for the average person, diet soda may lead to an increase in consumption of other calories that partially ameliorates the effects of avoiding those in the soda. Since this tax is not directed at conscious dieters, but rather at those who are not making rational consumption choices, the public health effect is likely to be little.

Will the tax decrease consumption? The tax is not very large, but it may have an effect on consumption. However, as a relatively small tax on a preferred food (which is, for those that want energy, better than the alternative) is likely to meet relatively inelastic demand. Let's compare this to another similar tax I mentioned earlier, the cigarette tax. In America, while cigarette taxes have increased, demand has fallen. There is some evidence that these phenomena are related (especially in dissuading teenagers from starting smoking), but most of the effect is likely due to the changing societal view of smoking. In many parts of western Europe where taxes are many times higher than ours on cigarettes, smoking is far more popular. Smoking's popularity seems to be far more correlated with the way our respective societies view smoking than the cost of cigarettes.

Will the tax bring in more state money? It seems unlikely to drastically negatively impact consumption, so probably. Is it a good way to bring in money? I certainly don't think so.

Again like cigarette taxes, most obesity taxes are likely to be regressive, most painfully affecting the poorer members of the community. Even in his CNN editorial, Governor Paterson said:

Nearly one out of every four New Yorkers under the age of 18 is obese. In many high-poverty areas, the rate is closer to one out of three.

The demand for less healthy, calories dense food tends to be higher among the poor. Is it really appropriate to increase their tax burden to make up for a budget shortfall? Some might argue that the poor people can make the rational choice to avoid the slightly more expensive foods (and many probably do), but it's interesting that to be defending this tax on those grounds, you also have to deny that they can make the rational choice to avoid less healthy foods to begin with (and many probably do, too).

When trying to figure out if something is a good idea or not, I attempt to consider all the possible effects. This measure decreases economic liberty, and by singling out one industry, if it decreases demand it is doing so in a targetted way, instead of decreasing demand for all unhealthy food, which seems like it is likely to have a greater negative effect overall (I can bump into a few people on the subway lightly and still have done less harm than bumping into another person as hard as I did to the first three added together). The effect on people's health could be a mild improvement, nonexistent, or possibly even a decrease (depending on the effects of aspartame on total caloric intake). The measure is also may negatively impact (financially) those who need their money the most. Does it sound like a good idea to you?