Hello everyone! It has taken us a while to get back to normal (whatever that means!) after our week-long Disney vacation. Hope you all have been doing good. Here is this week’s 5 for Fridays where I am once again focusing on the idea of a soda tax. Feel free to share your opinion in comments below.

Calls for soda tax are getting louder

Looks like the pundits have spoken again, this time in a louder, high pitched, unified voice! In a recent health policy report titled The Public Health and Economic Benefits of Taxing Sugar-Sweetened Beverages published in the prestigious New England Journal of Medicine, several “experts” have proposed that a 1 cent tax be imposed for every oz. of a sugar-sweetened soda. They estimate that such a tax will generate about $15 billion in the first year in addition to the state-level revenues. They have even setup an online tax calculator for different states and major cities! They propose that these extra dollars can be used for childhood nutrition programs, obesity prevention programs or healthcare for the uninsured.

Now I am sure that such talk is music to the ears of many people, especially those in the government trying to figure out how to pay for the healthcare reform. It might be appealing to those at the state and local levels also as their budgets are under severe stress. It is not a surprise that this idea has attracted the attention of most of the prominent mass media in recent weeks. Watch out, they are trying to build a mass hysteria!

I think this is a very misguided proposition. I have written about it in a recent post explaining why I don’t believe in a twinkie tax or a soda tax. And just to be clear, my arguments have nothing to do with the politics of the situation, rather they are based on an understanding of how business works.

For this week’s 5 for Fridays, I thought of compiling a summary of various viewpoints I have read on the web lately in response to this idea. Check them out and let me know what you think!

1. An interesting commentary in the New York Times explains why sodas are a tempting tax target. It is quite clear that there is a link between caloric imbalance and obesity. It is also known that soda consumption has skyrocketed over the last few decades. Put the two together and it is easy to see why the sugar-laden soda with its empty calories is the prime suspect for our obesity problem. Let us tax it to reduce its consumption; after all it has worked for tobacco. It is not a basic need anyway and even Adam Smith justified taxing such unnecessary which have become objects of almost universal consumption!

What I did like about this article is that it tries to address the bigger problem and talks about a broader Pigovian approach to get rid of the subsidies for corn syrup. Much more difficult to accomplish politically I am sure.

2. Another commentary on Forbes.com shows a serious skepticism about the effect of a soda tax on obesity and makes its case using numbers. Data suggests that even a 58% tax on soda, which is equivalent to the combined federal and state taxes on cigarettes, could at most lead to a mean BMI reduction of 0.16 points. Moderate decrease in consumption is expected in response to taxes, however there is a belief that people will simply switch to the diet option or other drinks. The return on these tax dollars in other words is not expected to be significant.

Let us leave the numbers aside for a minute – people can argue over them endlessly in my opinion. But I agree that the soda tax does not change the demand in any fundamental way.

3. In an excellent review Dr Ayala digs deeper into why these health experts favor taxing sugary drinks and offers her opinions on why such a tax should be supported. What I liked the most about her review is that she actually takes the time to explain why excessive consumption of sugary drinks leads to obesity and serious health problems.

Dr. Ayala is a pediatrician and an outspoken supporter of obesity prevention, healthy lifestyle and good nutrition choices. I respect her a lot, but on this matter we have a difference of opinion. I am personally no fan of soda anymore, but that is by choice not because of price. I do agree with her that a public debate on the ills of sugary drinks regardless of whether a tax is imposed on them or not will be good for everybody.

4. The Health Blog on the Wall Street Journal presents an interesting calculation to show that even when the penny an ounce tax is imposed on the soda and it is completely passed on to the customer, it will still be cheaper to buy soda than orange juice. The main idea is to show that the tax will have to be much higher in order to bring the price of soda in line with other so-called healthy options.

One observant reader left a comment that the box of orange juice also shows a lot of sugar per serving, so probably not a good example. Great point, and I agree because there is a lot of added sugar in these ready-to-serve orange juices. The underlying point however is that consumers should really read the labels and decide for themselves if they should be buying a particular food item or not. When consumers make healthy choices they are truly empowered and demand will change in a fundamental way.

5. Fooducate blog, which I read regularly, suggests we consider a calorie offset instead of the soda tax. Here is how it will work – for every ton of added sweetener, a company would contribute $3000 to a government program aimed at obesity reduction. This is equivalent to the penny an ounce tax on the finished product.

Interesting idea because it directly affects the cost of production rather than price of the product. It also encourages the manufacturer to reduce the sugar content or switch to healthier products. I also suggested several other ideas that can affect the cost of production in my post on twinkie tax.

This is a good debate. However we should focus on the big picture and not try to put a band-aid on it by using taxes. I think the experts have their heart in the right place because they are worried about our health problems and lack of effective policy. But they need to get more creative and offer something better than a soda tax!

Enjoy your weekend!

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