Should We Tax Soda and Fruit Juice?

The United States has a serious deficit crisis, and there are only two ways to fight a serious deficit. You can (1) cut spending or (2) increase revenues. Unfortunately most of the growth in federal outlays comes from military and entitlement spending. But we're fighting a war on terror abroad with an aging population at home, which puts military/entitlement spending in a laser-fortified lockbox. That leaves increasing government revenues, which is the most anodyne way to say "raising taxes." Which taxes should we raise? The ones on our sins. Yes, even the ones that promise us 100 percent of our daily Vitamin C.

When in past posts I've defended a sin tax on sugary soda drinks, some commenters asked: But why just sugary soda? Why not a "sugar" tax on other drinks, including fruit drinks? The LA Times reports that

100% fruit juice poses the same obesity-related health risks as Coke, Pepsi and other widely vilified beverages...

A cup of orange juice has 112 calories, apple juice has 114, and grape juice packs 152, according to the U.S. Department of Agriculture. The same amount of Coke has 97 calories, and Pepsi has 100.

So I'll say, yes. The sugar sin tax can hit fruit juice as well. And Starbucks lattes, too. Expanding the tax would not only increase the potential for government revenue but also it could allow lawmakers to make the sugar tax smaller and collect the same amount of money, because the sales tax would impact more sales.

It bears repeating that the reason I support sin taxes -- on sugary drinks, alcohol, marijuana, and so on -- is because I see little downside in the tax "not working." You can argue that income taxes discourage extra work, because they reduce the value of additional hours worked at the margin. But if a sin tax discourages the purchase of some cans of Sprite, this isn't really a big deal. In fact, it's arguable a very good thing because it makes you healthier. As Matt Yglesias notes, the tax is "introducing a little bit of allocative distortion into the economy," but that doesn't bother me, especially when weighed against the broader purpose of fixing the country's long-term fiscal crisis.

This article available online at:

http://www.theatlantic.com/business/archive/2009/11/should-we-tax-soda-i-and-i-fruit-juice/29873/