Friday, September 18, 2009

Taxing fizzy beverages

Yesterday we all learned of a proposal for a one cent per can tax on sodas and other sweetened beverages (Raleigh N&O version; NYT version). This would generate as much as $15 billion in revenue; you decide for yourself whether that is a lot of money by today's Washington standards. Needless to say, Coke, Pepsi and their customers are less than pleased.

I am no obesity expert by any means, but two aspects of this proposal strike me as less than well-thought-out. First, why single out sodas and not tax Doritos, Haagen Dazs, and the eight ounce burgers at Raleigh Times as well? Just as many economists have suggested a carbon tax as the best way to deal with global warming, a more generalized calorie tax levied at both restaurants and groceries would make more sense if we were to use taxes to address this issue. Second, many of the obesity scolds also tend to be on the left end of the political spectrum and worry about the impact of any new policy on those near or below the poverty line. But do they really want to introduce what surely would be a highly regressive tax? Obesity is concentrated much more among the poor than the rich, presumably a reflection of the difference in educational attainment between the two groups.

Economic research on obesity has focused on the role of falling food prices (as evidenced by the larger consumption of super-size servings) and the shift in dining from food prepared at home to food prepared away from home. A recent NBER study by Dana Goldman and two colleagues at the RAND Corporation did find that a "fat tax" on selected foods (McDonalds, you're next) would have at best a modest impact on obesity.

Here's another idea, borrowed from reality TV: let's have a national weigh-in and give tax rebates to those who lose the most weight. Of course then we would need another scheme to make sure the weight loss is not temporary. Incentive design is tough.


  1. Dr. Allen,

    I agree that singling out sodas is odd, and I would call it a sin tax by another name. This, coupled with the current healthcare debate, makes me ruminate about a private healthcare system that rewards those who "maintain" their health just like they maintain other investments such as homes and cars. It's not a new concept, but seems like a simpler solution to a complex problem than one off taxes and the gov't making a run at competing with private healthcare providers.

    OTOH, based on the pizza delivery cars and parents coming home from work with bags of McDonalds in my neighborhood, I'm not convinced that many families have retained the ability to cook a healthy meal on a daily basis, much less manage a holistic plan for family health. I'm sure the extra $.06 will make them think twice about that 6-pack of soda...


  2. >>> Incentive design is tough.

    A perfect reason why the government should not be in the "incentive" business. Stop being a nanny state.