Death of a Soda Tax

Recently, efforts to institute a new soda tax in New York State failed, as the tax died a relatively quiet death last week on the floor of the New York State legislature. It was one of the first soda tax efforts nationwide, and as such, it sends a signal to other states considering similar legislation.

So, is this a good thing or a bad thing?

I'll try and frame up the debate by throwing out a few thoughts. First, I'd support the soda tax if I could reasonably trust in two things: 1) the data used to justify the tax, and 2) that the state would actually apply the tax revenues towards effective anti-obesity programs.

I'll be honest, I'm struggling on both points.

The experience with tobacco settlement proceeds over the past decade or so gives us a highly instructive example. Sadly, almost every state that received tobacco settlement money simply blew the bulk of the money up front to plug existing budget holes. The money, uh, kinda sorta just got spent. Worse, even after all that money washed though the system, smoking rates didn't really decline all that much. As a society, we lost an enormous opportunity there.

A related point: many people don't understand why the beverage industry spent so much money trying to fight off this tax (The New York Times claims that the American Beverage Association spent some $9.4 million to oppose soda taxes in 2010 alone).

I'm not sure I can justify that spending, but I can at least attempt to explain the logic behind it. First, once you GET a new tax, it's very difficult, politically speaking, to stop it from going higher. See cigarettes as Exhibit A, and notice that while New York failed to pass a new tax on sweetened drinks, they had no problem jacking up the tax on cigs by another $1.60 a pack (trick question: how much of the proceeds from this tax increase will go towards effective anti-smoking efforts?). This might help explain why the beverage industry felt it was worth spending what seemed like an out-of-proportion amount of money to try and prevent the tax in the first place.

Look, I lurve the idea of people drinking less soda. Long time Casual Kitchen readers well know that soda is a prime example of a second-order food. It's loaded with extra processing, transport, branding and marketing costs--all borne by the consumer. Worse, drinking these beverages is an easy way to ingest frightening amounts of calories. I preach about this regularly here at Casual Kitchen.

And that's why, initially, it seems so easy to make an argument for this tax. Almost too easy. Charge a little more for soda, give the money to the state, and use a little social engineering to try and do something about obesity. Hey, you never know. Maybe you'll massage peoples' behavior for the better. (Of course, your ability to make statements like these also depends on your philosophical position on the government's role in making our choices for us).

Finally, theory and idealism about how a tax should work is one thing. But as always, the devil is in the details, specifically with the state's tenuous promise to use the money appropriately and judiciously.

Readers, where do you stand on soda taxes, and why? [Strong opinions are welcome, but as always, please keep it civil.]

Related Posts:
The Food Spending Poll: Results and Conclusions
Why Do Products Go On Sale?
Obesity and the Obama Administration
Let That Other Guy Pay! Saving Money in Two-Sided Markets
How Food Companies Hide Sugar in Plain Sight

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Warren Bobrow said...

I am all for a soda tax.

What is wrong with cutting sugary soda out of the diet?

I do draw the line on cane sugar soda, these are sublime!

Jeff D said...

I don't think it's the government business to tell people what to put in their bodies, but I know I'm out there in that belief.

You will also quickly see manufacturers figure out how to make beverages that do not meet the definition of the taxed beverage. This is what happened in Japan when they put a hefty levy on beer. The breweries there changed their formulas enough so that their beverages no longer met the legal definition of "beer" and sold them untaxed.

Ivy said...

Honestly, I haven't given it much thought--I don't drink soda (not a fan of the carbonation).

What I'd like to see, even more than a soda tax, is more of an effort to make healthy food more affordable. Even if soda is taxed--you can get a 2 litre of soda for, what, 99 cents? Even with tax, how much will it go up? To 1.99? Still a bargain compared to $3 for a gallon of milk, or $4 plus for orange juice. Of course, that's not as catchy as soda tax.

Milehimama @ Mama Says said...

We subsidize soda through corn subsidies (HFCS). It doesn't make any sense to tax it! Why not just withdraw the subsidy for HFCS? In effect, a soda tax will require taxes twice for the same product (once to pay the corn farmers, once to pay for whatever anti-obesity program they come up which is likely to be a boondoggle.)

I live in TX and the schools have outlawed "foods of minimal nutritional value" in schools. Perhaps we could consider disqualifying foods of minimal nutritional value from the food stamp program? Right now you can buy Cheetos, Snickers, and Dr. Pepper with food stamps, but not a roasted rotisserie chicken.

I would support that before I supported a soda tax.

In my neck of the woods, you can get a 12-16 oz. frozen juice concentrate that reconstitutes to 48 or 64 oz. for around $1 to $1.50 - the same price as a 2L of Coke.

Daniel said...

Warren, I don't believe NYS made a distinction between sweetened soda of all types (diet, cane sugar/sucrose, HFCS) and sodas sweetened just with cane sugar/sucrose. Sometimes when you let the government make choices for you, they don't choose the choice you'd choose.

Jeff: on this debate and on most food blogs, yes, I agree, most people are fixated on the soda itself, not on the personal liberties aspect of this debate. Hey, sometimes we give up freedoms by majority vote without even realizing it. That's democracy for you. Fortunately it didn't happen in this case.

Milehimama: I hear you. I totally forgot to mention the irony of corn subsidies in this debate. I'll add, however, that corn subsidies are federal and predominantly for farmers in other states. This tax is New York State's effort to dig up more revenues.

Sadly, the hilarious irony of subsidizing corn farmers and then turning around and taxing drinks containing HFCS was lost on many New York legislators. :)


Janet C said...

I think that the point of the tax should be to increase revenue, period. Sorry. I don't necessarily think that the tax should pay for stuff directly related to the item being taxed.....BUT that so-called sin taxes SHOULD be for non-essential items. In otherwords, don't tax food. (But soda is fair game). It raises much-needed revenue, and if it discourages undesirable consumption, so much the better. This is why I favor a largely increased gasoline tax: we could all stand to cut back on our gasoline consumption, and if gas were very expensive consumers would start looking for alternatives to driving. But more importantly, it is a fair way to increase revenue.

I have very mixed feelings about the cigarette settlement money, btw. As a health care provider, a part of me agrees that the money should have least gone to health care related projects. But my state (Nevada) used to mostly to set up a college scholarship program for state residents...a program that was available to all as long as they stayed in the state for college, regardless of need. As the mother of two sons who attended college here in Nevada, I received direct benefit from that program -- hence my conflicted position.

Daniel said...

Janet, some great insights. Thank you.

This next comment gets a bit off topic and veers into finance-speak, so feel free to skip it:

But what's so disturbing to me about the cigarette situation (and what makes me worry about whether we're just being "enablers" again by taxing soda) is the fact that most states spent years of the settlement revenues up front (by borrowing against future settlement payments), and then incurred further liabilities with that borrowed windfall.

Here's an analogy: Let's say you promise your kid a $5 a week allowance. He then goes to the securities markets and uses your promise of 10 years of future allowance money to collateralize a loan for $1,300 at 7% interest ($1,300 is roughly the net present value of $5 a week for 10 years).

Then, he uses that $1,300 to make a downpayment on a car, taking on an additional loan for the rest of the car's value at 6%. Now he's making payments at 7% for the "allowance loan" and 6% for the car.

Boom: Suddenly, a huge windfall (that was supposed to pay for government efforts to get us to smoke less) gets turned into a double liability. Ouch.

I get how the idea of taxing soda is, in theory, a good thing. But when I see prior examples of where theory meets practice, I'm just horrified by what happens to the money.


chacha1 said...

Jeff D, a soda tax does not equal nanny government. No one's telling you you can't drink soda. They're just telling you it'll cost a little more. :-)

Milehimama, with you 100%. Let's cut the corn (and sugar) subsidies first.

But then I have no problem with taxing soda. It would be an excise tax like that on other non-food items that are bad for you, like cigarettes and liquor. Soda is not a food, so it's fair game like Janet C says!

And I don't think it much matters where the money goes. People drive less when gas prices go up, they smoke less when tobacco prices go up, and they drink less when liquor prices go up. Ultimately reducing these habits through higher excise taxes means lower costs to society. In the meantime, plug holes with the money.

Chris said...

I think you take the "personal liberties aspect" a little too seriously. It's SODA. So it costs a few cents more. So what?

In our state the money was earmarked for disease and disability caused by smoking, rather than anti-smoking campaigns. Tax it, campaign against it - people will still smoke.

I know a woman who pays $8.00 a pack for her cigs, is ridiculed and/or pressured to quit from colleagues, has to go out of the building in freezing weather to light up, pays a premium for life and health insurance due to her habit, but SHE STILL SMOKES.

Also, regarding the tax on HCFS, yes it's federal, but you pay federal taxes in NY, don't you? Tobacco was subsidized for a long time, too, and isn't anymore. Everyone knows if you reduce the corn subsidy, prices for all the junk (think McDonalds) will go up; is that taking away "personal liberties" too?

And you may be "horrified" at what actually happens to the money, but I am sure you'd happily loan that allowance kid some dough at 7%.

Daniel said...

Chris, is it really just about soda?