New research from the American Consumer Institute shows that soda taxes are anything but sweet. Growing in popularity among politicians to curb consumption, it turns out soda taxes do little to promote public health. Far worse, soda taxes are regressive, disproportionately hurting poor people the most.
As cities like Washington D.C. look to enact their own soda tax, countries like Mexico and Denmark should serve as an example of just how bad these policies are. As lawmakers consider enacting soda taxes, it’s time for these proposals to fizzle out.
It’s been six years since the first soda tax was passed in Berkeley, California and while the general hope is that people will drink less sugared beverages, often the tax has little effect on health. For instance, after Philadelphia passed their tax, beer became cheaper than soda causing “a 5 percent increase in alcohol consumption,” not exactly the best scenario for public health or driving.
Similarly, research from the New Zealand Ministry of Health found the gains from taxing soda “could easily be canceled out by substitution of other sources of sugar or calories.” But it turns out, for those that still wanted to have a soda with lunch, many were willing to travel for it.
Indeed, research found that carbonated soft drink sales increased by 38 percent outside Philadelphia proper, after the city passed its tax. Because of these unintended consequences, Dr. Fatima Stanford, professor at Harvard Medical School, has said “we have not seen any major shifts with regards to actual obesity rates with regards to putting sugar taxes here in the United States.” But the results get worse as soda taxes prove to be a financial burden, especially on the poor.
Soda taxes are highly regressive. Because the tax is the same for everyone, poor people pay a higher proportion of their income at the register compared to the rich. Moreover, unlike higher income consumers that can drive to the next county to buy lower taxed beverages, lower-income consumers tend to be less mobile, which means that poorer consumers will pay the brunt of the tax.
Our research at ACI confirms that, “In the lowest income group, spending on [sugar-sweetened beverages] accounted for seven percent of income in 2015, compared to about 0.2 percent of income among the highest-earning households, a 35-fold difference.”
Yet, these laws affect more than the poor as businesses have also suffered from soda taxes. With a combination of increased prices and people shopping outside the city, businesses inside the city saw revenues dip. One finding showed the tax is costing supermarkets $300,000 a month in lost sales, including the purchase of fruits, vegetables and other non-beverage products. Unsurprisingly, this has forced many stores, like ShopRite, to lay off employees or worse, close shop entirely.
A 2017 study from Oxford Economics found “that the soda tax had destroyed 1,192 jobs in Philadelphia, reduced the city’s economic output by nearly $80 million, and eliminated $55 million in labor income to workers.” Indeed, Philadelphia should serve as an example that soda taxes are anything but good for the economy.
Yet this could’ve been avoided had the U.S. looked at other nations that passed similar proposals. Take Denmark’s example: after it passed a “fat tax” in 2011, it was reported that “80 per cent of Danes did not change their shopping habits at all as a result of the tax. The impact on the nation’s waistline is therefore likely to have been approximately zero.” Because people were able to cross the border to buy their beverages, the law was ultimately considered a failure, causing the country to abandon its proposal only a short 15 months later.
Likewise, after Mexico passed their own version of soda tax in 2014, over 30,000 businesses closed shop, taking with them around 11,000 jobs. Had only the U.S. looked abroad; the results would’ve shown that soda taxes only cause harm.
As policymakers look to promote public health, they should be cautious about ideas that may be popular, but in reality, are disastrous. Soda taxes do not improve public health. Instead they destroy jobs and unjustly become a tax burden for the poor. As cities consider enacting similar laws, they should look at places like Denmark and Mexico. Banning soda taxes would be a sweet deal for everyone.