On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- New Study on Taxing Soda Uses Faulty Assumptions
New Study on Taxing Soda Uses Faulty Assumptions
One of the first lessons of any sort of statistical modeling is that the assumptions drive the results. Most of the time, when the scientific community disagrees with each other, it is usually because one scholar feels that another has chosen a set of assumptions that is not true to life. I'm afraid that some bad academic assumptions are making for some very shocking headlines in the sugar and snack tax debate.
A new study (purchase required) in the most recent edition of the journal Health Affairs claims that a national tax of 1 cent per ounce on sugar-sweetened beverages would prevent an eye-popping 95,000 coronary heart events; 8,000 strokes; and 26,000 premature deaths over 2010-2020.
Essentially, they argue that if the price of soda is increased by a tax, consumers will buy less soda, therefore consuming fewer calories, and subsequent weight loss would subject them to less health problems.
While I buy into the idea that an increase in the price of soda will incentivize consumers to buy less soda (in economics, this is known as the law of demand), I also know that people have alternatives. In some of the more rigorous economic analysis of this topic I've seen, Yale economist Jason Fletcher found in 2010 that when adolescents switch away from soda due to tax increases, they perfectly substitute in the same amount of calories from other food or beverages. In other words, at least from a caloric perspective, they are the same position they were before the tax.
But this is not the only unintended consequence that could result from hefty tax rates on soda. Should soda taxes be implemented on a wide scale in the United States, it seems entirely plausible that consumers would start demanding more bang for their buck. In this case, that could mean some form of Super Soda—more calories, more sugar, higher caffeine in a smaller container.
This gets to the heart of the problem with plans to tax sugary beverages and candy. While proponents aim to reduce obesity, their methods only tax one potential input to obesity. In the meantime, they subject all moderate users of soda to astronomical soda tax rates (as high as 264 percent). This is a serious neutrality issue.
For a comprehensive look at sugar and snack taxes, click here.
A county in Oregon pushes for a 1 cent per ounce tax.
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