Douglas Shackelford is the Dean of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and the Meade H. Willis Distinguished Professor of Taxation.
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Good news out of Vermont this week, as the House Ways and Means committee voted 6-5 to kill the proposed $1.28 per gallon sugar-sweetened beverage excise tax that was being considered in the state. Back in late February, I testified to the House Ways and Means and Health Care committees on the bill. While the Health Care committee sent the bill through (after a few shenanigans), the Ways and Means committee seems to have taken the arguments against using the tax code to change behavior to heart.
As I argued in my testimony:
[…] the influence of soda taxes on obesity outcomes is questionable. We know from the law of demand that raising the price of a product will make people consume less of that product, but people don’t behave in a vacuum. A 2010 study found that soda taxes do reduce soda consumption, but that children and adolescents tend to perfectly substitute in calories from other sources. This resulted in no net change in caloric consumption. A 2007 study found that an increase of 1 percentage point in the state soft drink tax rate would lead to a decrease in BMI of just 0.003 points. For perspective, the CDC defines a “healthy” BMI for a six foot tall adult male as between the large range of 18.5 and 24.9.
There is also evidence that taxes on soda lead people to drink more beer. A 2012 study by economists at Cornell University showed that for households prone to buying alcohol, there was a 172.4 ounce increase in beer consumption per month when a 10 percent tax was applied to soda. This equates to a heightened intake of 1,930 calories in the same time frame. This raises concerns about potentially switching one public health problem for another. As an interesting side note, Vermont currently taxes beer at a rate of 27 cents per gallon. The proposed rate on soda would be almost five times as high as the current tax on beer.
I think the overarching lesson to learn from this is that people respond to tax changes, but not necessarily in the way policymakers would want them to.
[…] this debate centers around moral questions. Reducing obesity is an important goal, but policy actions have costs. My largest concern is that placing a tax on soda is a blanket policy that would affect all Vermonters. There are many people that enjoy sodas regularly and make adjustments in their diet elsewhere to maintain a healthy lifestyle. These people will be affected by an excise tax as well, and I think that is why the tax code is far too blunt an instrument to address something as comprehensive and subtle as nutrition choices.
UPDATE: The final tax package that the House will vote on may expand the sales tax base to include candy and sugar-sweetened beverages (my arguments here), and also includes a 50 cent per pack hike on cigarettes (comprehensively addressed here). The budget will ultimately have to be signed by Governor Shumlin, who has expressed his opposition to tax hikes.
More on soda taxes here.
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