Soda Taxes Are Still Not a Substitute for Real Tax Reform

Much of the criticism of the Bowles-Simpson report has focused on its bold, but not bold enough approach. Yesterday the Bipartisan Policy Center (BPC) released its own deficit reduction plan, including some new ideas not in the fiscal commission co-chairs plan. Unfortunately at least one of those ideas is getting bold in the wrong direction: a one-cent per ounce tax on all sweetened beverages and the syrup used to make them, similar to some existing state taxes.

The BPC’s proposal calls for a tax system that would be “fairer, simpler and more favorable to economic growth” and correctly notes that tax preferences that “impose radically different burdens on two different taxpayers with the same income” are unfair. It is ironic then that BPC would suggest pop taxes which have been repeatedly shown to be unfair, unfavorable to economic growth, and impose different tax burden on people with the same income.

Like all consumption taxes, pop taxes fall disproportionately on the poor and entirely on those who consume sugary drinks. It is an unfair regressive tax like other excise taxes (i.e. cigarette or booze) by increasing the prices on a relatively cheap good, causing low-income earners to spend a higher percentage of their paycheck than others buying sugary drinks. This does not belong in a plan that seeks to champion increased progressivity of the tax code and a broader base.

Perhaps the BPC report is willing to over look this contradiction because of the perceived social value. Many argue that pop taxes reduce obesity and wean children off unhealthy drinks, and the study repeats these claims. But this ignores the wealth of research showing that taxes on sugar sweetened beverages does not help achieve the social goals it aims for. For example, an Emory University paper in 2008 found:

state soft drink taxes have a statistically significant impact on behavior and weight; however, the magnitude of the effect is small. An increase in the state soft drink tax rate of one percentage point leads to a decrease in BMI of 0.003 points and a decrease in obesity and overweight of 0.01 percentage points.

For other studies see the here, here, and here.

Washington State voted down earlier this month a tax law similar to what is being proposed here. Why would we want to extend a soundly rejected idea to the whole nation?

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

David Godow was a research assistant at Reason Foundation from 2010-2011. He primary focused on state and federal tax policy, including sin taxes, income taxes and corporate taxes.