A New Soda Tax Strategy Directly Addresses the Real Cost of Sugar

Soda taxes are controversial, but taxing sugary drinks can lead to healthcare savings and dissuade consumers from going overboard on soda. As researchers learn more and more about soda’s ill effects on health, some cities and countries around the world have implemented taxes on soda distributors. But some scientists believe that there are “under-appreciated” ways to make these taxes better.

"We should tax the sugar, not the water."

Soda taxes are designed to limit how much added sugar people have in their diets. But in the US, these taxes are levied based on the volume of a drink, not necessarily how much added sugar is in each bottle of Pepsi or Mountain Dew. Hunt Allcott, Ph.D., a microeconomist at New York University, argues for a new, simple approach to the soda tax:

“Sugary drinks have two main ingredients: sugar and water,” he tells Inverse. “It’s the sugar that’s bad for us. So we should tax the sugar, not the water.”

In a policy paper, published Thursday in Science, Allcott and a team of economists argue that if state and local governments levied a tax per gram of sugar, not per ounce of liquid, they would see greater economic gains that total $400 million per year — but also prevent 630,000 cases of obesity and 11,000 cases of Type 2 diabetes.

How Would This New Soda Tax Work?

Soda taxes differ depending on where they’re levied. Some only affect beverages sweetened with sugar or caloric sweeteners like high fructose corn syrup. Others, like Philadelphia’s, are also levied on artificial sweeteners found in diet sodas (diet sodas also have been linked to early death). Regardless, they have one thing in common: In the seven US cities with soda taxes currently, sugary drinks get taxed by the ounce.

That means when sugar is added to a drink, a tax is calculated based on how large that drink is, say a 12-ounce can. Soda taxes typically land around one or two cents per ounce of liquid. But not all sodas have the same amount of sugar in that can.

For instance, a 12-ounce Mountain Dew “Throwback” has 44 grams of real sugar. The same size can of Coke has 39 grams of added sugars (in the form of high fructose corn syrup). Under this new taxation plan, the can of Mountain dew would end up being more expensive than the can of Coke.

The idea behind this tax is not just to stop people from drinking sugar-sweetened beverages. If you simply must have a soda, under this tax you would save a bit more money by choosing one that’s less sugary. Though, you would save the most money (and avoid the related health complications) by ditching the habit all together.

To predict what would happen if we did tax soda in this way, Allcott’s team compared a volumetric tax of one cent per ounce to an “economically equivalent” sugar tax of 0.37 cents per gram. They found that the latter would further reduce American sugar consumption by 2.3 grams per day. Tentatively applied across the 240 million people who already live in places with volumetric taxes globally, they estimate that a sugar tax like this one could help them lose a combined 100 million pounds.

“We thought this issue was under-appreciated,” says Alcott. “Our article quantifies just how much more benefit we could get from soda taxes from a relatively simple change.”

The Bigger Picture Around Soda Taxes

The National Institutes of Health reports that soft drinks are responsible for most of the added sugar in American diets, so there is good reason to think carefully about taxing them. But there are still lingering concerns about a soda tax for several reasons. First, these taxes fall disproportionately on low-income families, and second, there’s a concern that people will just get their sugar fix elsewhere.

The idea that a sugar tax places a disproportionate burden on low income families is still being discussed. In fact, Allcott co-authored a working paper for the National Bureau of Economic Research on this very idea. But in terms of getting sugar elsewhere, a paper published Wednesday in The BMJ makes a salient point: If we really want to tax sugar, maybe we should think about taxing sweet snacks, too.

This BMJ study was designed to investigate a UK population, so it’s not a perfect comparison to this paper for a few reasons. For instance, the UK already structures its beverage tax differently. It’s still a volumetric tax, but beverages with higher sugar content are still taxed slightly higher. But taken together, they showed that a snack tax would also be powerful.

"We thought this issue was under-appreciated."

Using product consumption data from 36,324 UK households, that paper reports that raising the price of biscuits, cakes, and confections (including chocolate) by 20 percent through taxes would result in a 2.9 percent reduction in the country’s obesity rate.

They estimate that a sugary snack tax would reduce obesity-related health issues twice as effectively as a beverage tax alone. But taken together, a sugary snack tax and a sugary drink tax would result in 2 kilograms of weight loss per year in the UK’s lowest income households. But the authors interpret this as evidence that UK policymakers should consider both taxes.

As far as the US goes, there is only one place in the country that has a “junk food tax” — the Navajo Nation, which implemented the tax in 2015.

Right now, there are seven US cities, and 42 countries around the world that use soda taxes. But as these taxes are considered in more cities and countries, the debates around them are becoming more nuanced.

If we’re really serious about taxing sugar, there may be far better ways of doing it.

Abstract: Taxes on sugar-sweetened beverages (SSBs), such as soda and bottled iced tea, are an increasingly popular ap- proach to reducing obesity, diabe- tes, and other health harms (1). As of mid-2019, 42 countries and seven U.S. cities have implemented SSB taxes (2). A basic economic principle is that such cor- rective taxes should be proportional to the harm caused. The harm from sugary drinks comes from the sugar, and SSBs vary sub- stantially in sugar per unit volume. Yet SSB taxes typically set constant rates per unit volume; only three SSB taxes worldwide are proportional to sugar content. For example, the seven U.S. cities that tax SSBs use volu- metric taxes of 34 to 68 cents per liter of liquid (1 to 2 cents per ounce) instead of, say, 0.5 cents per gram of sugar. These volu- metric SSB taxes are poorly targeted to the actual health harms from SSBs. We estimate that a simple design change—taxing the amount of sugar in a drink, not the volume of liquid that accompanies the sugar—could boost a SSB tax’s health benefits and overall economic gains by roughly 30%.