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Tax a Cola, Spend More Money Without Meaningful Benefits

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Jeff Ritterman, Vice Present of the Board of Directors for his local chapter of the Physicians for Social Responsibility recently wrote on The Huffington Post that we should "Tax a Cola, Save the Planet."

I've read lots of editorials advocating soda taxes, but this one beats them all in promising what a soda tax will deliver. He argues that:

"A simple policy change like the Soda Tax can help us waste less water, lower our GHG production, and lessen the pollution of our air, water and soil. At the same time, it can fund vital programs in our schools, parks and neighborhoods to improve nutrition and physical education opportunities for our children. It's a win-win-win: a win for the environment, a win for our children, and a win for our communities."

Wow, one tax will do all that! H.L. Mencken reportedly said that "for every complex problem there is an answer that is clear, simple, and wrong."

Climate change, pollution, water shortages, and public health are all complicated, complex problems in their own unique ways. Yet, we are to believe one policy -- a soda tax -- is the clear, simply solution for them all? It would do some good to actually look at the research on the effects of soda taxes.

Ritterman notably avoids directly making the claim that soda taxes will significantly reduce weight. This is probably because of the many real-world studies published in reputable academic journals showing that variation in tax rates on sodas across locales has only tiny effect on obesity. Moreover, some studies have actually suggested that soda taxes may increase caloric consumption. A study recently published in Health Economics showed that nationally, soda taxes actually added about 28 calories/day to American diets. One study published in the Journal of Nutrition Education and Behavior by Cornell researchers showed that soda taxes may lead to more consumption of alcoholic beverages. Another study published this year in the American Journal of Agricultural Economics found that a soda tax had a trivial impact on caloric consumption, increased consumption of fat and sodium, and made consumers economically worse off by about $24/year. Why? Because when people stop drinking soda, they drink or eat something else that is less preferred -- such as juice, milk, or beer -- which can have more calories than soda. The findings let the author to conclude: "Our results cast serious doubt on the assumptions that proponents of large soda taxes make on its likely impacts on population weight" and " important substitution patterns in response to soda taxes... offset any caloric reductions in soda consumption."

These studies highlight the fact that consumers are not bystanders who simply accept the results of well-meaning policies. They respond -- often in unanticipated ways that have unintended consequences.

Ritterman argues that a soda tax will results in less soda being consumed, and he's probably right. But does that mean that there will be less water and less aluminum consumed? Well, it depends what consumers drink and eat instead of soda. If people instead drink more milk or more beer, as previous studies have suggested, will water consumption really be cut? If more cows are needed to produce more milk due to the increased demand caused by soda taxes, will greenhouse gases really fall?

Ritterman is right to suggest that enacting a soda tax can raise revenue for the government. But, that hardly makes it an economically efficient thing do. A tax is akin to reducing in one's income. No one likes having less income. Using taxes to direct people to buy goods they didn't purchase before the tax cannot make people better off. This is economics 101.

Yes, if we want public roads and schools, we need to tax something. But, most economists would argue that we want to tax things that create the least deadweight loss -- or that impose the fewest costs on society. Moreover, many of us want our tax system to be "fair", and taxes on food and sodas are regressive because the burden is borne relatively more by the poor, who spend a larger proportion of their income on food than the rich.

It is difficult to believe that soda taxes are any less distortionary to the economy or are more progressive than are countless alternative means for the government to raise revenue.

Ritterman is a physician who works with an organization who advocates for "social responsibility." But, the economy is part of society. And the best evidence available indicates that soda taxes do not represent responsible economic policy.