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Bernie's case against soda taxes

Bernie Sanders has argued that that 'sin taxes' like levies on soda consumption unfairly burden low-income families. Is he right?

By Zachary J. McDade , TaxVox

Last month, Philadelphia became the latest city to propose听taxing soda听and other sugar-sweetened beverages. Such taxes have become popular as more evidence links sugar consumption to听poor health and greater health expenditures.

With Pennsylvania鈥檚 presidential primary Tuesday, both Hillary Clinton and Bernie Sanders weighed in on the proposal. As听TheUpshot听reported Friday,听Clinton supports the tax, much of whose revenue is earmarked for early childhood education programs. It鈥檚 a laudable goal, especially combined with the evidence of听high returns to investment in early childhood education.

But, as Sanders fired back, so-called 鈥渟in taxes鈥 tend to be quite regressive, falling most heavily on low-income families. True? If so, is it a good argument against the tax?

Urban researchers recently published a paper examining听the effects of soda taxes. Sanders is right: a soda tax would fall most heavily on the poor relative to their income. A one-cent per ounce tax would produce an average tax of 0.19 percent of income for the lowest quintile of earners, while the same tax would produce an average tax rate of 0.04 percent for the highest quintile.

On the other hand, tax rates of less than one-fifth of one percent are not very big. Even with Philadelphia鈥檚 three-cent tax, the lowest quintile might pay an extra $75 per year, all else equal. For some households $1.50 a week makes a real difference, but for most it probably doesn鈥檛. 听

But, while Sanders鈥檚 critique is technically right, there might be more important issues to consider. For example, as听Donald Marron听wrote recently:

Another issue is how well sugar consumption tracks potential health costs and risks. If you are trying to discourage something harmful, taxes work best when there is a tight relationship between the 鈥渄ose鈥 that gets taxed and the 鈥渞esponse鈥 of concern. Taxes on cigarettes and听carbon听are well-targeted given tight links to lung cancer and climate change, respectively. The dose-response relationship for sugar, however, varies across individuals depending on their metabolisms, lifestyle, and health. Taxes cannot capture that variation; someone facing grave risks pays the same sugar tax rate as someone facing minute ones. That limits what taxes alone can accomplish.

In addition, people may switch to foods and drinks that are also unhealthy. If governments tax only sugary soda, for example, some people will switch to juice, which sounds healthier but packs a lot of sugar. It鈥檚 vital to understand how potential taxes affect entire diets, not just consumption of targeted products.

In other words, if many of the people affected by the new tax have only a 鈥渓oose鈥 relationship between sugar consumption and poor health, the tax might not buy much in terms of health improvements. That alone may not be a problem, so long as the tax still raises new revenue for early childhood education.

But its total revenue effects are uncertain. If people are highly responsive (and they听tend to be) to the听price increase鈥攐ver $4 for a 12-pack of soda鈥攖hey may just switch to other, non-taxed beverages. In other words, such a high tax may just drive people away from soda and similar beverages, failing to raise much new revenue. It is also possible that people may simply go outside of Philadelphia to buy their soda.

On the other hand, Philadelphia predicts that it鈥檒l raise almost $100 million annually. Even if that guess is twice as high as reality, the city would raise $50 million in new revenue, which would buy considerable new early childhood education and other services.

Perhaps the soda tax鈥檚 uncertainty is in itself a good reason to support it. Such taxes are growing in popularity and the sooner we have real data on them, the sooner we can understand with certainty their real-world effects.

This article was听originally published听on The Urban Institute's blog,听Elevating the 2016 Debate鈥.听