In Defense of the Soda Tax

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Like a season of your favorite broadcast sitcom, rumors that the federal government might use a soda tax to help pay for health care reform largely disappeared over the summer, only to make a triumphant September return. Ezra Klein and Jon Cohn now both see a soda tax as part of the finance package to pay for trillion-dollar health care reform. Is this a terrible idea?


I'm sure there are plenty of people who think so, but I like the idea of a small tax on sugary beverages. On soda a 3 cent tax per 12-ounce serving could generate $24 billion in four years. Will it makes us healthier? I don't know. But even if there's not much evidence that soda taxes will squeeze our waistlines, the important thing is that they can improve our bottom line. The point of a tax, any tax, is to raise money for the government. The added benefit of a sin tax is that by taxing something you consider harmful, you can win in two ways. If you don't discourage consumption of the taxed good, revenues go up. If you do discourage consumption of the taxed good, then congratulations, you've reduced the sin you considered harmful in the first place. Considering the enormous impact of obesity on soaring health care costs, that would be a very good thing indeed.

An excise tax would also work with alcohol. Alcohol taxes have gone unadjusted for two decades and Inflation has eroded the tax over the last half century. The Center on Budget and Policy Priorities estimates that simply returning alcohol taxes to their 1991 levels, we would raise another $27 billion in the next ten years. What would that cost us alcohol drinkers? A person who drinks a glass of wine every night "would pay only $10.95 more in alcohol excise taxes over the course of a year," which is, any wino knows, about the cost of one glass of wine at a restaurant.

It's true that these taxes are regressive. The soda tax, especially, is a flat tax on drinks that are both more likely to be consumed by poor minorities and will cost them a higher proportion of their income. But I can sleep knowing that, since the money generated from the sin tax is going to pay for Medicaid and health care subsidies for less fortunate Americans, anyway.
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Underneath the issue of a soda tax is the bigger question about why Americans are getting so fat. It's quite clear to me -- and, I see, to Slate's Daniel Engber -- that the answer is some combination of market prices and evolution.

As the price of food has dropped over the last few decades, the price of junk food has plummeted (see graph below). So why didn't we just spend less money to eat the same amount of food? Because humans aren't very good at knowing how hungry we are. There are plenty of studies proving this small fact. Daniel Engber calls our invisible stomach "hedonic hunger" -- the biological urge to eat for pleasure that is tied to our ancient need to "stock up" on high-caloric food.

But in 2009 we're cavemen stomachs living in a world of plenty, where the cheapest foods are the most caloric. Our evolutionary instinct to maximize caloric intake has married our economic instinct to buy cheap, and the result is, predictably, an exponentially growing obesity rate. So when I hear about a soda tax -- or an obesity tax -- I don't think about distorting incentives or regressivity. I think about this graph, and how the market has already created a hugely distorted incentive that preys on our evolutionary instinct to eat cheap, unhealthy food that is poisoning both our bodies and our health care budget.

graph fat food.png

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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