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Soda Taxes Are A Failed Experiment, Claims New Report

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Guy Bentley Research Associate, Reason Foundation

Soda taxes are a failed experiment and should be scrapped, according to a new report from the Competitive Enterprise Institute (CEI).

Instead of tackling obesity, soda taxes are more likely to hit the budgets of low-income families and have only a slight effect on the amount of soda consumed, says CEI Fellow Michelle Minton.

Philadelphia, Penn. is in the middle of a furious debate over whether to slap a 1.5 cent per ounce tax on soda, with Mayor Jim Kenney claiming the proceeds will go to pre-K education. Former Secretary of State Hillary Clinton and Sen. Bernie Sanders sparred over the issue, with Sanders accusing his opponent of supporting a tax that would fall disproportionately on the poor. (RELATED: Union Bosses Trade Blows Over Philly Soda Tax)

One of the main arguments favoring a soda tax is that putting up the price will reduce the amount people buy and in turn helps reduce levels of obesity. The problem with this approach, says Minton, is that consumers respond differently to price changes.

Even if people do initially cut back on soda, it may only be a small amount and consumers often return to their old shopping habits shortly after the tax is introduced. Minton points to the example of Finland, where a tax on candy sales had an impact in the short term, but sales returned to the same levels they had been before the tax after one year.

People might also keep buying soda at a higher price but cut back on other goods they buy, leaving them worse off. Consumers can also substitute the higher price soda they used to buy for other products that might be just as bad for them. (RELATED: Report: Sugar Taxes Have NO Impact On Obesity, Just Hurt The Poor)

But even if advocates are willing to impose a bigger cost on the poor to ensure people buy fewer sugary drinks, the empirical data doesn’t even support this point. A survey of 8,000 households from Mexico, which introduced a 10 percent tax soda tax, shows low-income families were the least likely to cut their soda consumption.

“The result is that those with the least amount of money are paying a greater proportion of the soda tax, which raised $1.3 billion for the Mexican government in 2014,” says Minton. There’s also little evidence to suggest raising the price of soda will reduce obesity.

Researchers found the Mexico soda tax boosted cost of calories by four percent but only cut calorie consumption by one percent per week. Looking at Body Mass Index before and after the tax was introduced, they found “no discernable difference.”

“Soda taxes are a stealth tax against middle class and especially lower income people,” said Minton. “Faced with a new tax on soda, some consumers may shift their calorie indulgences to other foods or drinks, some may cut back on other grocery purchases, and others will just pay the tax to get their favorite soda.”

“The real-world effects of ‘sin taxes’ imposed on certain food and beverages have been universally lackluster,” Minton explained. “Experience shows soda taxes disadvantage the people least able to absorb the cost, with no measurable improvement in public health. Philadelphia lawmakers should reject this failed experiment.”

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