It's official: soda tax offers "net good" to society

Despite opposition from the soda industry, studies consistently show that sugary drinks need to be taxed.

Want a simple way to improve society? Tax soda, researchers say.

For kids and adults alike, sugary drinks (soda drinks, fizzy drinks — call them as you will) have become nigh ubiquitous — they’re just everywhere. The world loves them and can’t get enough, but there is a cost to all of this. The vast majority of such drinks are essentially devoid of any useful nutrients or fiber and are very rich in sugar, which aside from being notoriously bad for your teeth, is also one of the main culprits of the ongoing global obesity crisis.

In this regard, soda drinks are very similar to alcohol or cigarettes: you don’t drink them because they offer something useful, you drink them as a very small luxury, and an unhealthy one like that. So if cigarettes and alcohol are taxed for these reasons, why shouldn’t sugary drinks be taxed in the same way?

In recent years, economists have been arguing more and more for a soda tax. It makes perfect sense — on the one hand, you reduce the consumption of unhealthy substances, improving society’s quality of life and reducing the burden associated with being overweight, and on the other hand, you raise a lot of money which can be used to develop health programs that add further benefits. A new study analyzed that idea at a fundamental level, and found that a soda tax adds a net benefit in society, if implemented correctly.

“The research is clear that sugary drinks are bad for our health,” explain Hunt Allcott, Wharton’s Benjamin Lockwood, and Dmitry Taubinsky, the papers’ authors. “Our study takes a next step to evaluate the overall economic rationale as to whether we should impose a tax. Using an economic framework, we show that taxing soda generates net benefits to society–taking into account the health effects, the enjoyment that people get from drinking the drinks they enjoy, the value of the tax revenues, and other factors.”

Americans are aware that they drink a lot of soda, the study finds. Just over half of Americans say they drink “more often than I should,” so at least at some level, many people would like to drink less. Previous studies have shown that people with higher nutritional awareness also tend to drink less soda, which suggests that if people were fully informed, they would make better, healthier decisions.

A nationwide soda tax in the US would yield $7 billion in net benefits to society each year, and national (or at least regional) taxes work best. Currently, several cities in the US have implemented such a sugar tax, but the tax impact is limited by the fact that people can simply go outside of town and buy cheaper soda.

Much like the cars emitting pollution that harms others, sugar can cause a wide array of health issues, including diabetes, obesity, and heart disease. This translates into medical bills which are paid by taxpayers or (in some cases in the US) by private insurers. At any rate, having healthier people also translates into reduced costs, but the opposite is also true: unhealthy people will produce a financial cost to society. In this case, researchers estimate that drinking an average 12-ounce can of Coke will impose about 10 cents on others.

These health issues disproportionately affect low-income people, but opponents of a sugar tax have claimed that applying an extra cost will also disproportionately affect this category. This new study finds that this is not the case.

“We estimate that soda taxes benefit both low- and high-income people,” the researchers say. “While low-income people drink more sugary drinks and thus pay more in soda taxes, their health also benefits more from drinking less.”

The study also finds that taxing the actual sugar is more effective than taxing the liquid which contains sugar. A tax of 0.5 cents per gram of sugar would work much better than the 1 cent per ounce of liquid, which is often discussed in practice. This is because, although all sugary drinks are dangerous, some have much more sugar than others, and should be taxed accordingly.

Lastly, the team also discusses diet drinks. The city of Philadelphia, for instance, implemented a sugar tax that also applies to replacements of sugary drinks. While there have been concerns regarding the effects of such drinks on human health, the results are much less clear. Simply put, we’re sure sugary drinks do a lot of damage, and we’re not exactly sure how much damage replacements do. For now, the team recommends taxing sugar.