The Impact of Soda Taxes

Via Ezra Klein, a RAND study of the impact of price changes on body-mass index indicates a modest impact. The implications for a soda tax? Ezra says “whether or not soda taxes are a good idea for raising revenue, they’re not likely to do a tremendous amount to change the national waistline.”

I’m not too saddened by the result, because as I’ve been saying the right way to think of public health taxes is as a revenue measure:

Think about the case for taxing income, via the income tax and FICA. Why do it? Well, to get the money. That’s how we finance Social Security, the Department of Defense, Medicare, interest payments on the national debt, Medicaid, federal aid to schools, veterans’ health care and benefits, the FBI, etc. Now what’s the case against taxing people’s income? Well, it’s that it discourages work and it discourages investment. And that’s bad for the economy. Now we go back and forth over whether any given expenditure has a value that outweighs the economic costs. Liberals, like me, tend to think that a relatively high level of expenditure is justified whereas folks on the right tend to disagree.

But what if we could raise some revenue by taxing something else? Like, say, cigarettes. Or soda. Or booze. Well, then the case for doing the taxing remains similar—you can fund useful programs with it. But the case against looks a lot weaker, since reducing consumption of cigarettes or soda is not so bad. You introducing a little bit of allocative distortion into the economy, but not a huge amount, and you’re improving public health which is going to be beneficial.

It’s worth recalling that if it somehow were the case that a modest soda tax led to plummeting soda sales, that a modest soda tax then wouldn’t work as a revenue measure. The point about the benefit of raising money from a soda tax isn’t that the decline in consumption would be giant, it’s that a marginal reduction in soda consumption wouldn’t be problematic in the way that some other responses to taxation might be. The tax would be somewhat regressive, but if it was used to finance Medicaid expansion and subsidies for health insurance that would more than offset the impact.