Building a better soda tax

The negative health effects of consuming sugar are a principal rationale for the new soda taxes. But the taxes have a design weakness: Instead of taxing sugar, they target drink volume.

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    Soft drink and soda bottles are displayed in a refrigerator at El Ahorro market in San Francisco.
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Soda taxes won big at the ballot box in November. Voters in Boulder, Colorado, and three California cities (Albany, Oakland, and San Francisco) approved new taxes on sugary drinks. In Illinois, Cook County adopted one soon after.

The negative health effects of consuming sugar are a principal rationale for the new soda taxes. But the taxes have a design weakness. Instead of taxing sugar, they target drink volume. Oakland, for example, will tax sugary drinks at a penny per liquid ounce. That approach has the benefit of simplicity. But as Norton Francis, Kim Rueben, and I explore in a new report, it is blunt to focus on the drink rather than the sugar.

A better approach would be to link taxes to a drink’s sugar content. That content varies widely. A regular cola might have seven teaspoons of sugar in an 8-ounce serving, while an iced tea might have only two. Taxing those drinks at the same rate discourages soft drinks generally, but does nothing to encourage consumers to switch to less sugary options. Nor does it encourage businesses to develop and market lower-sugar options. Basing soda taxes on sugar content, in contrast, gives both consumers and businesses an incentive to switch to lower-sugar products.

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Several countries have already taken this approach. Hungary, for example, targets its volume-based sugar tax at drinks with particularly high sugar content. The United Kingdom will have two volume-based taxes, one on medium-sugar drinks and a higher one on high-sugar drinks. And South Africa recently announced a tax based on added sugar content.

Sugar content is usually straightforward to measure—it’s listed on nutrition labels. As a result, most cities and counties that want to tax soda should find it feasible to link taxes to sugar content, unless they run into state limits on their taxing authority.

As I’ve noted before, soda taxes are a limited tool for improving nutrition. Well-designed taxes can discourage consumption of sugary drinks, which clearly contribute to obesity, diabetes, and other ills. But health depends on many factors, not just the amount of sugar one drinks. People may switch to other, tax-free alternatives like juice that also have lots of sugar.

Soda taxes also are regressive, falling more heavily on lower-income families. And they raise controversial questions about the role of government in our personal lives.

Given those concerns, reasonable people differ over whether such taxes make sense. However, if governments choose to enact them, they should target them as precisely as possible to the harm they are meant to reduce. For sugary drinks, that means targeting sugar, not drink volume.

This story originally appeared on TaxVox.

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