Tax on sugary soft drinks to help pay for health care reform

Should We Tax Sugary Drinks?

According to the Wall Street Journal, Senate leaders are "considering" taxing sugary soft drinks to help pay for health care reform. So far, though, it seems the consideration will consist mainly of listening to testimony Tuesday from the Center for Science in the Public Interest, which advocates such a tax.

Actual consideration may or may not come later. Actual enactment is even iffier: Just look at what happened when the state of New York tried to do it.

The Journal refers to the federal proposal as a "soda tax," but it's actually much more interesting than that. One idea is to levy the tax on all sugary beverages, which would include the ones that the industry has successfully camouflaged as health drinks: energy drinks and "sports" beverages—like Pepsico's (PEP) Gatorade and Coca-Cola's (KO) Powerade Coke's VitaminWater, Kraft's (KFT) Capri Sun "juice drink," and the like. All of which are loaded with added sugar.

Such drinks are waxing in popularity, even as classic soft drinks wane. If a tax were levied only on soda, the revenue collected would be even tinier, in terms of paying for health care reform, than what the proposed tax on all sugary drinks would raise. And that revenue would diminish over time, probably pretty quickly. Taxing all sugary drinks at a rate of 3 cents per every 12 ounces would raise about $24 billion over four years, according to the Congressional Budget Office. The estimated cost of overhauling the health care system is $1.2 trillion.

Like any sin tax, the idea is not only to raise revenue but also to discourage consumption. But Americans have already been largely discouraged from drinking soda, and the shift to other sugary drinks hasn't made up the difference. More people are drinking water and other unsweetened drinks, not to mention "diet" drinks containing artificial sweeteners.

Still, a lot of people continue to glug down a lot of liquid sugar. Many of them are poor, and, of course, the beverage lobby has latched onto that as a talking point.

But mainly, the lobby is attacking its attackers. CSPI, says the American Beverage Association, is part of "the food police"—a group of people who "make their living—literally, their income—by bashing foods and beverages."

Well, not quite. They don't bash all foods and beverages—just the ones that are turning Americans into fat diabetics with bad hearts and cancer. And, last I looked, people in the food industry make their living—literally, their income—by persuading Americans to consume a lot of crap. Which is worse?

And the ABA is being highly disingenuous when it says that taxes won't discourage consumption of sugary drinks. If so, why are they so upset about it? It's a pretty basic economic law: If prices rise, consumption falls. One recent study, cited by the New England Journal of Medicine, found that a 10 percent increase in the price of sugary beverages leads to a drop in sales of 7.8 percent.

Still, the beverage lobby has a point when it asks how far government should go in insinuating itself into Americans' consumption habits. Such steps should be taken very carefully.

And there's one more consideration that complicates matters even further, and one that hasn't come up yet from what I can tell: the fact that "added" sugar (or, more precisely, added high fructose corn syrup) doesn't necessarily mean much. Pure fruit juice is loaded with sugar and calories, too. Sure, it's better for you than the empty calories of soda, "juice drinks," sports beverages, etc. But given that the tax, as proposed, would be levied based on calories, why should fruit juice be left out?

source: reuters