David Leonhardt makes a compelling case for the soda tax in the New York Times today, noting that as the price of sugary drinks has fallen relative to the price of healthy foods, consumption of the bad-for-you soda skyrocketed. Indeed, the inflation-adjusted price of fruits and vegetables rose 17% between 1997 and 2003, while the price of Coca-Cola fell by an astonishing 34.89%. All this has resulted in higher obesity rates and increasing health care costs:

Sugar-sweetened beverages …may be the single largest driver of the obesity epidemic. A recent meta-analysis found that the intake of sugared beverages is associated with increased body weight, poor nutrition, and displacement of more healthful beverages; increasing consumption increases risk for obesity and diabetes; the strongest effects are seen in studies with the best methods (e.g., longitudinal and interventional vs. correlational studies); and interventional studies show that reduced intake of soft drinks improves health. Studies that do not support a relationship between consumption of sugared beverages and health outcomes tend to be conducted by authors supported by the beverage industry.

As price of soda has fallen:

Consumption of soda has increased:

The beverage industry is busy sponsoring its own contradictory studies and pushing the meme that a tax on soda is by nature regressive (the industry spent at least $18 million to keep a tax out of federal health reform and is now spending more in the states), an argument which only makes sense if you ignore or discount the fact that obesity disproportionately affects the poor and that taxing soda would help reduce consumption (if it’s high enough), improve health outcomes among this population, and raise much-need revenue. As Leonhardt observes, “Someday, we will probably look back on our gallon-a-week soda habit the way we now look back on allowing children to ride without seat belts or listening to doctors who endorsed Camel cigarettes. We will wonder what we were thinking.”

Thirty-three states already levy a sales tax on soda (39 states levy a tax on soda in vending machines) and the President’s White House Task Force on Childhood Obesity makes a relatively weak pitch for the idea. Recommendation 4.9 suggests that policy makers should merely “analyze the effect of state and local sales tax on less healthy, energy-dense foods.”

Today’s Progress Report has more on the Task Force and the obesity debate.

The new health care law includes a free rider provision that assess employers with 50 or more employees “that do not offer coverage and have at least one full-time employee who receives a premium tax credit, a fee of $2,000 per full-time employee (excluding the first 30 employees from the assessment). Employers that do offer coverage but have “at least one full-time employee receiving a premium tax credit” will have to pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee.

Under the law, businesses that don’t offer coverage and pay wages that can qualify an employee to receive tax credits will incur additional costs, and fast food establishments are already complaining about the “increased tab.” Franchisees estimate the new federal health care bill “could cost them as much as $55,000 per restaurant annually,” Chicago Business reports:

That’s a significant hit for franchisees, whose restaurants generate about $2.4 million in revenue and $300,000 in pre-tax profit, on average. And it could hamper the Oak Brook company’s campaign to persuade franchisees to remodel thousands of locations in the next five years. With their profits reduced, the restaurant owners are likely to raise prices and resist McDonald’s push to offer promotions and discounts to boost sales. [...]

Mark Kalinowski, an analyst in New York at Janney Capital Markets, last month surveyed 16 franchisees about the health care bill and found the average expected cost was $55,000 per restaurant and the median response was $50,000. He estimates the new law would “wipe out” about 15% to 20% of profits.”

Part of this is likely overblown. Since the free rider/individual mandate requirement does not go into effect until 2014, nobody knows what the real impact of reform will be and some restaurants may find it cheaper to offer coverage to their employees in the exchanges or associations than pay the penalty. Secondly, having healthier workers serving and cooking fast food seems like a win-win for everyone involved, as does the possible increase in fast-food operating costs.

Fast food restaurants could conceivably respond to the higher costs by producing cheaper, even lower quality foods, or they could, as the article suggests, increase prices and stop renovating the space to attract younger children. If the latter is the case, then health reform could act as a “tax” that discourages consumption of the kind of food that increases chronic health care costs. That, seems to me, will be a sign that reform is working.

At least 20 states are fighting obesity (and raising revenue) by taxing soft drinks “sold in stores at a higher rate than other types of food.” But two new studies conducted by researchers at Yale and Rand seem to suggest that the relatively low tax rates (the average rate, net of taxes on other food, was 2.08% in 2008) may be doing little to decrease obesity rates.

Both studies conclude that the current beverage taxes are neither large enough nor “transparent enough to lead to meaningful behavioral change” and recommend that states jack up their rates. The Yale researchers also find that states need to remove soda from school cafeterias and vending machines if they hope to reduce child obesity:

Policy Recommendations These results also suggest specific ways to revise future policies to better affect children’s weight outcomes. In particular, we make two recommendations based on our results. First, if states or schools implement policies aimed at reducing access to soft drinks, these restrictions must be comprehensive. Soft drinks should be completely removed from schools for this policy to have a greater chance of being effective—no vending machines, no cafeteria sales, no access anywhere. It is important to note, though, that continued access to soft drinks from homes, convenience stores, and other outlets may still serve to reduce the effects of completely removing soft drink sales from schools.

Second, our findings suggest that incremental changes in taxes on beverages will be largely ineffective. This finding does not preclude the effectiveness of very large increases in taxation on these products, as have been proposed in New York, for example. To date, we know of no evidence that could forecast the likely impacts of substantial changes in soft drink taxes with certainty, but we speculate that an environment of high taxes on soft drinks (as well as unhealthy substitutes), combined with informed consumers, may lead to weight reductions in children.

So a small soda tax may not trip the waistline, but so long as any revenue is dedicated towards funding public health programs, the people who choose to consume ridiculous amounts of Diet Coke or Mountain Dew are paying some part of the extra medical costs associated with that behavior. It’s a good way to raise money and discourage unhealthy behavior (to some degree). Too bad it’s not part of how we’re financing health reform..