Lab Soft News: Federal Tax on Soda Pop Proposed: Can This Be Justified?

I have come to accept the idea that there are five "toxic" substances that are broadly consumed by the U.S. population: salt, sugar, fat, nicotine/tar from cigarettes, and ethyl alcohol. Our citizens would be healthier if their intake of these foods/chemicals was reduced in some way. Meanwhile and in the face of a major economic downturn, the federal and state governments are seeking additional revenue while cloaking some of these new programs as public health initiatives. This has been the broad public support in the past for the high taxation of both cigarettes and liquor, which are commonly known as sin taxes. Here is the latest news about a possible tax on soda pop (see: Soda Tax Weighed to Pay for Health Care) with boldface emphasis mine:

Senate leaders are considering new federal taxes on soda and other sugary drinks to help pay for an overhaul of the nation's health-care system. The taxes would pay for only a fraction of the cost to expand health-insurance coverage to all Americans and would face strong opposition from the beverage industry. They also could spark a backlash from consumers who would have to pay several cents more for a soft drink....The Center for Science in the Public Interest, a Washington-based watchdog group that pressures food companies to make healthier products, plans to propose a federal excise tax on soda, certain fruit drinks, energy drinks, sports drinks and ready-to-drink teas. It would not include most diet beverages. Excise taxes are levied on goods and manufacturers typically pass them on to consumers....The Congressional Budget Office...estimated that adding a tax of three cents per 12-ounce serving to these types of sweetened drinks would generate $24 billion over the next four years....Proponents of the tax cite research showing that consuming sugar-sweetened drinks can lead to obesity, diabetes and other ailments. They say the tax would lower consumption, reduce health problems and save medical costs. At least a dozen states already have some type of taxes on sugary beverages....The main beverage lobby that represents Coca-Cola Co., PepsiCo, Kraft Foods and other companies said such a tax would unfairly hit lower-income Americans and wouldn't deter consumption.

There are a number of interesting tidbits contained in this news excerpt. For example, the proposed sin tax, in its current form, will be levied against sugary beverages but not against artificially sweetened beverages. On the face of it, this seems logical because sugar currently appears to be the health culprit. However, who's to say that the artificial sweetening agents will not, in time, prove to be unhealthy? The rules of fair play would suggest that all soda pop should be taxed. My instincts tell me that the real reason for this distinction is that most of the congressmen probably consume diet drinks from time to time.

The determination of whether a tax of three cents per 12-ounce serving of sweetened drinks will deter consumption is a matter of the price elasticity of demand for the product. Of some interest is that the Wikipedia article on this topic specifically cites the demand for sugar as being very elastic because there are substitutes for sugar to which consumers may switch to.

The quote from the beverage lobby representatives that "such a tax would unfairly hit lower-income Americans" can be interpreted in two ways. The most obvious is that such people can ill-afford any increase in the price of beverages. However, I also have the nagging sense that sugary beverages are disproportionately consumed by people in the lower socio-economic classes. Perhaps this is because I rarely see anyone on airplanes or at professional meetings consuming anything but bottled water or diet drinks. My suspicion, based in part on the work of David Kessler as described in his new book, The End of Overeating: Taking Control of the Insatiable American Appetite, is that sugar is additive and that this addition is more common among lower income people because sugary beverages provide a cheap fix for this addiction (see: Crave Man). Similarly, more people in the lower socio-economic classes are addicted to cigarettes but they no longer provide a cheap fix.

:: Update on 6/29/2009 @ 7:25 p.m.

See: Soda Tax: From YouTube, to New England Journal, to Congress