Study on Seattle Soda Tax Offers Lessons on Legislating Behavior

Taxation Issues - The American Consumer Institute

Soda taxes are again in the news and this time for Seattle’s misconceived “sweetened beverage tax.” A new study released in January by the journal PLOS ONE has found that, despite claims to the contrary, Seattle’s soda tax did not improve “health outcomes.” These findings throw cold water on the idea that soda taxes are necessary for combating unhealthy eating and drinking habits. The results reaffirm the need for cities and localities to repeal their own soda taxes that unfairly punish consumers for their subjective preference.

In 2017, the Seattle mayor and city council enacted a tax on all sweetened beverages distributed within the city as part of a campaign to curb sugar consumption among residents. City leaders argued that the tax would not only provide health benefits, but also put money back into the city’s coffers. In addition, they argued other cities and localities had already implemented similar taxes and these taxes could serve as inspiration for their own.

Now several years into the experiment, the results are in and they aren’t pretty. While there is some evidence to suggest that soda consumption declined within the city, and that tax revenue was generated, there is almost no evidence “health outcomes” improved.

This brings us to our new study which found that two years following the city’s implementation of the tax, the volume of beer sold in Seattle rose 7% relative to neighboring Portland, which had no such sales tax. In other words, it appears Seattle residents simply swapped out soda and other sugary beverages for beer, a substitute that can be as equally unhealthy.

What the tax did do was harm distributers like small restaurants and convenience stores who were forced to raise retail prices on sugary drinks. The tax may also have simply led Seattle consumers to purchase soda outside city limits. This would be inline with other research that has found that consumers, in cities without these taxes, would frequently travel outside the city to make a purchase. Market forces consistently lead consumers to seek out better alternatives wherever they may be.

However, none of this has prevented political leaders from trying to implement similarly bad policies. For instance, last year Hawaii, Massachusetts, Rhode Island, and West Virginia all proposed new soda taxes. The District of Columbia also considered switching from its current sales tax rate to a per ounce excise tax. Fortunately, all of these measures failed.

Other states have taken more positive steps. Arizona, Michigan, Washington, and surprisingly, even California, have all moved to block local governments from implementing their own soda taxes.

Unfortunately, there are still 8 cities and localities across the country that levy some form of soda tax. These taxes vary by size and design, but all have a negative impact on consumer choice. In general, most localities choose to base their tax on a drink’s volume, with taxes ranging from 1-2 cents per ounce. The taxes are then applied to distributers, or retailers, who pass these costs onto consumers in the form of higher prices.

This is why tax schemes such as these are so inherently regressive. They are intentionally designed to inconvenience consumers and nudge them into taking a desired action. In doing so, these food police manipulate consumer preferences, and squash true freedom of choice.

These taxes also tend to fall disproportionately hard on low-income Americans and people of color who frequently lack access to healthier alternatives, therefore driving up their cost of living. Perhaps most depressing of all, these taxes seldom work. Numerous studies have demonstrated time and again these taxes typically fail to achieve their desired objectives. Common sense tells us it is futile to impose these punitive taxes. Coercive actions simply don’t work as well as positive incentives. The recent experience of Seattle should make this clear. If political leaders are serious about improving public health, they should focus on creating education programs that teach citizens about healthy eating and drinking habits. In addition, they should propose legislation that targets the high cost of living in their cities and helps lower the cost of purchasing healthy food items. Most importantly, they should repeal the punitive soda and sugary beverage taxes that make life that much more difficult for residents during a time of high inflation.

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