How well do current soda taxes work?
There are, presently, 33 states that implement some form of soda taxation. The five most obese states - Mississipi, Alabama, West Virginia, Tennessee, and Oklahoma - all have soda taxes, while three of the least obese, the District of Columbia, Massachusetts, and Colorado, have no soda taxes. There are a couple of important studies that have examined the relationship between these taxes and weight gain.
As Fletcher et al. note in “Can Soft Drink Taxes Reduce Population Weight” (Contemporary Economic Policy) if you examine changes in states' taxation rates from 1990 to 2006 a one percentage point increase in the tax rate was associated with a statistically significant decrease of 0.003 points in BMI. To put this into context, the National Institutes for Health defines a person as having a normal weight if their BMI is between 18.5 and 24.9, and obese if their BMI is 30.0. The .003 points is less than one thousandth of what a borderline obese person would need to lose to become borderline normal weight. The authors observe that such a change is “modest.”
In a second, later study by Fletcher et al. The effects of soft drink taxes on child and adolescent consumption and weight outcomes (Journal of Public Economics 94 (2010) 967–974), the authors looked at the impact of soft drink taxes on children and adolescent consumption and weight. While they found a moderate decrease in consumption, it was offset by children switching to higher calorie whole milk and other sweetened drinks. This may be a more nutritious development, but it did not lead to any weight loss. "The evidence to date," they write, “is that soft drink taxes are ineffective as an ‘obesity tax.’”
Speculative soda taxes
Given these results, Fletcher et al. suggest that a tax on soda comparable to tobacco might produce better results:
“Although a tax rate of 58% is out of the support of our data, we perform a back-of-the-envelope calculation to estimate the effects of imposing a soft drink tax of a similar magnitude to current cigarette taxes in the United States. Our results suggest that raising the soft drink tax to 58% would decrease the mean BMI in the United States by 0.16 points. In comparison, the average gain in BMI between 1990 and 2006 was more than 2.3 points. A similar calculation suggests that increasing the tax rate by 55 [absolute] percentage points would decrease the proportion of the population who are obese or overweight by nearly 0.7 percentage points. Although increasing the tax rate on soft drinks to be comparable with cigarettes will not halt the obesity epidemic, the impact on population weight would likely be non-negligible.”
The most widely reported and publically discussed soda tax proposal comes from Brownell et al. (The Public Health and Economic Benefits of Taxing Sugar-Sweetened Beverages, N Engl J Med 2009; 361:1599-1605):
A tax of 1 cent per ounce of beverage would increase the cost of a 20-oz soft drink by 15 to 20%. The effect on consumption can be estimated through research on price elasticity (i.e., consumption shifts produced by price). The price elasticity for all soft drinks is in the range of −0.8 to −1.0. (Elasticity of −0.8 suggests that for every 10% increase in price, there would be a decrease in consumption of 8%, whereas elasticity of −1.0 suggests that for every 10% increase in price, there would be a decrease in consumption of 10%.) Even greater price effects are expected from taxing only sugar-sweetened beverages, since some consumers will switch to diet beverages. With the use of a conservative estimate that consumers would substitute calories in other forms for 25% of the reduced calorie consumption, an excise tax of 1 cent per ounce would lead to a minimum reduction of 10% in calorie consumption from sweetened beverages, or 20 kcal per person per day, a reduction that is sufficient for weight loss and reduction in risk (unpublished data). The benefit would be larger among consumers who consume higher volumes, since these consumers are more likely to be overweight and appear to be more responsive to prices. Higher taxes would have greater benefits.”
The most significant weaknesses of Brownell et al. is that the authors do not model substitution effects; instead, they simply “estimate” that consumers would substitute 25 percent of the lost calories from reducing soda consumption. As Fletcher et al. note, increases in real excise taxes on soda have led to the substitution of higher calorie foods among adolescents for every percentage point increase in tax, eight calories of whole milk was substituted for six calories of sugar sweetened beverage. So it is far from clear why this substitution effect would disappear at increasingly higher levels of tax.
Brownell et al. posit a price elasticity based on a review by Andreyeva et al (2010), of which Brownell is a co-author. Yet, as Fletcher et al. note, a review of the research on compensated elasticity, which tries to account for complementary and substitute goods, finds the price elasticities for soda range from -0.15 (Zheng et al., 2008) to -1.9 (Dharmasena et al. 2009), which suggest anywhere from a 1.5 to a 19 percent decrease in consumption for a 10 percent increase in taxes.
Even if we achieved a 10 percent reduction in calorie consumption from sugar-sweetened drinks per person per day, the impact on low to moderate soda consumers would be minimal. As Bremer et al. note in their disaggregation of adolescent soda consumption as measured by the National Health and Nutrition Examination Survey (NHANES) in 2003-2004, the mean consumption of sugar-sweetened beverages for low consumers (those in the bottom quintile) was 6 ounces per day; for medium consumers (the 2nd to 4th quintiles), 20.8 ounces; and for high consumers (the top quintile) 55.2 ounces. With 12.5 calories per ounce of soda, this translates into 75, 260, and 690 calories respectively. Thus, assuming these consumers don’t substitute other high calorie drinks for SSBs, a ten percent calorie reduction would only have a minimal impact on energy intake for low consumers..
A very interesting study by Finkelstein et al. Impact of Targeted Beverage Taxes on Higher- and Lower-Income Households (Arch Intern Med. 2010;170(22):2028-2034) tries to address this issue by looking at household shopping patterns for SSBs through the Nielsen Homescan Panel, a nationally representative sample of household food purchasing. The authors “simulated the effects on caloric intake and weight resulting from a 20% or 40% tax on (1) carbonated SSBs only or (2) carbonated SSBs, fruit drinks, and sports/energy drinks simultaneously.” Their results are limited to store purchases by families only and show that:
“Taxes on carbonated SSBs of 20% and 40% generated per person annual weight losses of 0.20 and 0.37 kg, respectively. Expanding the tax to include all SSBs increased weight losses to an average of 0.32 and 0.59kg per person per year for a 20% and a 40% tax, respectively.” [For all SSBs, this translates into, roughly, a 0.7 to 1.3lbs annual weight loss]
Finkelstein et al. also note that the reductions were almost entirely driven by households in the two middle income quartiles and, more troublingly, these taxes would fail to modify calorie intake in the lower income quartile: :
“Because of their higher disposable income, households in the highest income quartile are least likely to change their purchasing behavior as a result of even fairly large sales taxes on SSBs. Therefore, the tax offers no direct benefit to them in terms of reduced weight. The results also show that household members in the lowest income quartile also may not see reductions in weight (reductions were not statistically significant). This finding is consistent with lower income households being most likely to change their purchasing behavior in efforts to circumvent the tax, perhaps by purchasing more generic, bulk, or sale items or by switching to nontaxed items that are equally high in calories.”
Finkelstein et al. note that the biggest limitation of their study is the assumption that small daily reductions in calories from SSBs due to their tax proposals (anywhere from 4 to 17 calories per daywould accumulate to larger weight loss. A linear relationship between calories and weight, they write, “fails to take into account the body’s compensatory mechanisms that limit long-term effects of caloric reductions on body weight. For these reasons, our estimated weight losses may be optimistic.”
Another recent study on soda taxes from researchers at the US Department of Agriculture (Smith et al. “Taxing Caloric Sweetened Beverages: Potential Effects on Beverage Consumption, Calorie Intake, and Obesity”, 2010), suggests that a 20 percent tax on SSBs could reduce net daily calorie intake by 37 calories per day for the average adult and 43 calories per day for the average child – about a quarter of a can of soda (150 calories). This, the authors say, would translate into 3.8 and 4.5 pound loss in weight over a year (assuming, of course, all other things being equal), which is dramatically more than Finkelstein et al. calculate for a 20 percent tax.
Finally, it's important to note that when data is aggregated, researchers are implicitly assuming there is an “average” soda consumer. As previously noted, however, soda consumption varies considerably, from 6oz to 193.6 oz per day in adolescents, and the variance on consumption has a big impact on the effectiveness of any reduced soda consumption resulting from increased taxes.
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