Soda Taxes

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Nick Kristof makes the case for a soda tax:

Mr. Paterson suggested the tax — an 18 percent sales tax on soft drinks and other nondiet sugary beverages — to help raise $400 million a year to plug a hole in the state budget. But it’s also a landmark effort that, if other states follow, could help make us healthier.

Let’s break for a quiz: What was the biggest health care breakthrough in the last 40 years in the United States? Heart bypasses? CAT scans and M.R.I.’s? New cancer treatments?

No, it was the cigarette tax. Every 10 percent price increase on cigarettes reduced sales by about 3 percent over all, and 7 percent among teenagers, according to the 2005 book “Prescription for a Healthy Nation.” Just the 1983 increase in the federal tax on cigarettes saved 40,000 lives per year.

I think there’s a reasonable case to be made that diet soda shouldn’t be exempt from the tax. I’m a Diet Coke man myself, but my understanding is that the research into how much healthier that really is is somewhat ambiguous, and I think enforcement of a soda tax could be made a lot easier if we didn’t add exemptions. But Kristof is on the right track here. As liberals tend to do, I would like to see the government spend more money on infrastructure and social services. I think it’s important that we pay teachers enough to recruit an adequate number of people into the profession. And beyond teaching, we probably need to spend more on a range of civil service salaries. We need to upgrade our infrastructure and we need to make sure children aren’t going hungry. We need to do a whole lot of stuff, and it would cost a whole lot of money to do everything I’d like to see us do. A lot of money can be found for that stuff, over the long run, by reducing the amount of money we spend on non-productive things like defense and medical waste. But ultimately there’s some need for taxes.

And while tax increases to fund useful services are things worth doing, it is worth considering the economic impact of taxes. Taxing the work people do can have a net beneficial impact on the economy if the tax revenue is spent on something adequately useful. But all else being equal, it does create a drag on the economy. Taxing cigarettes and soda and so forth, by contrast, mostly pushes people toward better healthy outcomes and therefore does something to boost quality of life and economic growth. And on top of that, it creates revenue that can be used for useful things. You wouldn’t want to try to fund the public sector entirely through vice taxes lest you wind up with black markets, perverse incentives, and a highly regressive code. But levied at a moderate rate, vice taxes can raise a lot of funds while having a modest-but-real positive impact on lifestyle choices and health outcomes. It’s something we ought to rely more on.