The Case Against Taxing Soda

Can we tax ourselves to better health? Many think the answer is yes. New York Mayor Michael Bloomberg champions a tax on soda; two California towns recently put the idea up for referenda; the Ontario Medical Association favours taxing sugary and fatty foods. (And, hey, the news from Europe: French lawmakers consider a Nutella tax.)

On this, we can all agree: North Americans are becoming very unhealthy. Obesity rates on both sides of the 49th parallel have soared, with one in four Canadians now qualifying as obese (American stats are even worse).

For much of the last century, medicine was all about fighting diseases like polio and smallpox. In this century, lifestyle choices and chronic illnesses have become major medical problems — and cost drivers. Rising obesity rates mean an epidemic of diabetes, cardiac disease, and slew of other avoidable problems, and their associated costs. "Fat," as the Financial Times quipped, "is a financial issue."

It's not surprising that so many champion ideas to trim our waists. The biggest target? Soda. Many North American experts now claim that soda is the new tobacco — indeed, Google those terms and you get more than 7 million hits. For them, Coke is the new Camel. Yale's Kelly Brownell claims that "[soda companies] are using many of the same tactics that tobacco companies used." Heavy rhetoric? Dr. Thomas Farley recently made a similar point and he's New York City's health commissioner.

And thus, people on both sides of the 49th parallel favour a war on soda. Writes Western economics professor Mike Moffatt: "soft drinks provide little to no nutrition, so it is easier to implement a specific tax on them than on all junk food. A tax on pop would more closely resemble the sin taxes on alcohol and tobacco." But as I point out in a paper released today by the Montreal Economic Institute, a soda tax would be bad idea.

Let me take a step back and note the basic problem in fighting obesity like we fought tobacco.

1. The times are different.

When the Surgeon General issued his landmark report in 1964, millions of North Americans made no connection between tobacco and cancer. We live in the age of Google — people know far more about their health. I've never met a patient who thought copious amounts of soda led to more healthful living.

2. The product is different.

Tobacco is never good for you. There is no right amount of tobacco; it does nothing but increase the risk of cancer and other diseases. Soda — like eating cake or a slice of pizza at lunch — can be part of a balanced, healthy diet.

And, thus,

3. The needed solution is different.

Taxes on tobacco helped push millions of people to butt out; faced with a heavy financial penalty, they had no alternative drug. Diet is vastly more complex — and it's not clear that a tax on soda would even be that helpful. People, after all, may avoid soda, but consume something in its place (this is the concept of caloric substitution).

Fanciful argument? Actually, researchers at Cornell University did a real-world experiment with taxation and soda: half the households in an upstate New York town faced a 10 per cent tax on soda consumption and the other half didn't. Interestingly the tax discouraged consumption only for the first month and then people went back to their old ways. And, alas, the law of unintended consequences: beer consumption increased for those facing higher soda taxes. The paper was published with the title: "From Coke to Coors."

Others have reached similar conclusions. One study in the Journal of Health Economics found that substitution effects are so complex that poorly targeted food and beverage taxes "could actually increase weight."

Here is an irony of modern times: medicine has never been better but we are increasingly less healthy. We need to take obesity seriously. But in our effort to better our health, we can't be seduced into simple solutions. A tax on sugary beverages sounds compelling. It's also too simplistic to make a difference.

David Gratzer is Associate Researcher at the Montreal Economic Institute. The views reflected in this op-ed are his own.

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