Popping the soda balloon

Sarah Lee Contributor
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The Washington D.C. City Council is set to vote May 25 on its 2011 budget and, included in the list of potential line items, is the contentious “soda tax,” a 1 cent per-ounce tax on bottled and canned soda intended to pay for a healthy schools initiative designed to address childhood obesity.

Driven by councilwoman Mary Cheh (D-Ward 3), the tax will be used to pay for her own $6 million “Healthy Schools Initiative,” legislation aimed directly at improving nutrition in schools and combating childhood obesity. In fact, in a letter written to other council members urging their support, Cheh notes that the tax will be the “single most effective measure to reverse the obesity epidemic.” It will effectively raise the cost of soda $0.68 per two-liter bottle and $1.44 per six-pack.

D.C. city residents have recently felt the sting of higher taxes – over the past year, for example, the bag tax went into effect as did a higher tax on cigarettes – and this newest is being promoted in a special way: it’s for the good of the children. The justification is that soda consumption is linked to obesity and childhood obesity is linked to Type II diabetes. Therefore, a tax that discourages the consumption of sodas or sugary drinks will help combat an affliction that leads to a disease.

While virtually no one would argue that anything that leads to healthier children isn’t a good thing, the fly in the soda tax ointment is simply this: this particular sin tax is highly regressive and generally ineffective at reducing obesity.

The National Center for Policy Analysis (NCPA) published a study on proposed new excise taxes in July 2009, around the time the Obama Administration began floating the trial balloon by mentioning the possibility of a national soda tax to pay for healthcare reform. What they found is what most economists already know: despite proponents of excise taxes claiming that they are easier to collect, are paid by those who benefit directly from the service or good, and offset the costs individuals impose on society due to their bad habits, they are in fact highly regressive, inefficient, unfair and, in the case of the soda tax, do little to combat obesity.

In fact, despite efforts to convince a populace suffering from a regressed economy and a high tax burden that they should feel good about yet another tax to be used to help the kids (apparently the revenue would go toward programs that bring fresh fruit and vegetables into schools), the data does not appear to be on their side.

Pulling from the NCPA report, The Tax Foundation at the time presented the soda tax data, and general data related to excise taxes, as such:

  • Increasing the soft drink tax by 55 percentage points would decrease the obese and overweight population by only 0.7 percentage points.
  • That means a 27.5 cent tax on a 50 cent can of soda would only lower the number of the obese and overweight from 66 percent to 65.3 percent of the population.

Such excise taxes are also highly regressive:

  • On average, the bottom fifth of income earners spend 1.7 percent of their gross income on alcoholic beverages compared to 0.6 percent for the top 20 percent.
  • They spend 2.5 percent of income on tobacco products versus 0.2 percent for the top 20 percent.
  • They spend 9.9 percent on gasoline and motor oil compared to 2.3 percent for the top 20 percent.

Perhaps the beverage industry, some of whom recently coalesced into the No D.C. Beverage Tax group, is aware of this data, as they counter with radio and full-page print ads demanding that the council not approve the tax. Councilwoman Cheh, however, clearly is not, likening the attempts to denounce her plan to scare tactics by Big Soda.

Whatever the outcome, the Healthy Schools Initiative, which, incidentally, passed unanimously earlier this month, must be funded. For their part, the Obama administration is apparently less interested than they were a year ago. U.S. Agriculture Secretary Tom Vilsack recently noted that the White House takes no position on the soda tax and considers it a “local matter.” The trial balloon seems to be losing air.

Sarah Lee is an Atlanta native and freelance writer living and working in Washington, D.C.