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The case for taxing sugar, not soda

(Chris Ratcliffe/Bloomberg News)

Soda taxes have become a weapon of choice among public-health advocates: In the past year alone, six U.S. cities and counties have begun targeting sugar intake by taxing sugary beverages.

But while there's evidence that these measures reduce soda consumption, economists say there is a very simple way to more effectively reduce sugar and sweetener intake. In a nutshell, don’t tax the soda — tax the sugar it contains.

According to a new research report by the Urban Institute, such an approach would reduce both sugar consumption and consumer burden more than the volume taxes — which tax beverages by the fluid ounce — that are favored by cities and counties across the United States. What’s more, they might also encourage manufacturers to reformulate some high-sugar beverages.

“The whole point is this:” said Donald Marron, who directs economic policy initiatives at the Urban Institute. “If you’re going to have taxes on soda, and if those taxes are motivated by sugar, then the tax should be on the amount of sugar.”

Marron and his colleagues at the Urban Institute modeled several soda tax schemes to reach those conclusions. For starters, they looked at volume taxes. Then they modeled several schemes that emphasize sugar content, such as a volume tax that applies only to very sugary beverages and a tax that varies proportionately with sugar content.

Britain uses a version of that former model, levying one rate on drinks with more than 5 grams of sugar per 100 milliliters, and a second, higher rate on drinks with 8 grams of sugar or more. South Africa recently adopted the proportionate approach, taxing drinks at roughly 2.29 cents per gram of added sugar.

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In the United States, seven cities and one county have passed soda taxes: Philadelphia, San Francisco, Cook County, Ill. (which includes Chicago), Boulder, Colo., and Berkeley, Oakland and Albany, Calif. All tax 1 cent per ounce, or 12 cents on a traditional soda can, with the exception of Philadelphia and Boulder. Philadelphia’s rate is 1.5 cents per ounce, or 18 cents per can; Boulder’s is 2 cents per ounce, or roughly a quarter per can.

Assuming that manufacturers and distributors pass those costs on to consumers — which is a big assumption — Marron found that all versions of the soda tax result in less soda consumption. When it comes to drinking less sugar, on the other hand, tax schemes that penalize high-sugar drinks have the biggest effect.

When normalized by the amount of taxes paid, a “one-tier tax,” which taxes only beverages that cross a certain sugar threshold, reduces sugar consumption by 25 percent. A straight volume tax, on the other hand, reduces sugar intake by only 22 percent.

Of course, sugar reduction is not the only goal of soda taxes — which may explain why the volume tax persists. Soda taxes are also major moneymakers for the localities that pass them. The Center for Science in the Public Interest, a nonprofit consumer advocacy group, estimates that Berkeley sees $1.5 million in extra soda tax revenue each year, and that Philadelphia will see more than $90 million. Marron’s model found that restricting soda taxes to only the most sugary beverages, as under the “one-tier” plan, would cut sharply into tax revenue.

That’s less money for the programs that soda taxes benefit; it’s also less money to cover the administrative costs of the tax itself. In other words, volume taxes might not be the most efficient or effective way to reduce sugar consumption — but on the local level, they’re the most realistic.

“Taxing the caloric sweetener, the ingredient of concern, is a policy approach that makes sense,” said Jim O’Hara, the director of health promotion policy at CSPI. “That’s just easier, from an administrative point of view, as a federal-level initiative.”

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Such an initiative is, however, a long way away — at least if recent experience is any indication. Rep. Rosa L. DeLauro (D-Conn.) has twice proposed a soda tax that would collect one cent per teaspoon of sugar in sodas and sugary beverages, a model similar to South Africa’s. Despite the endorsements of organizations such as CSPI, DeLauro’s bill never advanced out of committee. It was widely criticized by the American Beverage Association and the Koch-backed advocacy group Americans for Prosperity.

In the absence of a measure such as DeLauro’s, public health advocates will settle for what they can get. No sooner had Marron’s report come out then the American Heart Association issued a statement urging local governments to study its conclusions.

“As cities and states focus on improving health, they can encourage healthier choices by placing greater taxes on high-sugar beverages and lower taxes on lower-sugar beverages,” American Heart Association chief executive Nancy Brown wrote. But also, “We will continue to support local governments that take a more uniform volume approach.”

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