This study estimated whether small taxes on soda affect consumption behavior of children and their weight gain. The existing variation in taxes on soda is not very large—up to 7 percent, with a mean differential of 3.5 percent. Many proposals, even those put forward by advocates of “junk food” taxes, call for taxes that are well within the range of existing variation.18
Similar to the findings from previous studies that linked tax data to individual-level adolescent and adult population data on weight outcomes,2,4
our results suggest that such small taxes are unlikely to have measurable effects on soda consumption or obesity among children overall. However, there may be more noticeable effects in population subgroups at higher risk for obesity.
We found statistically significant and substantively larger effects of differential soda sales taxes among children who are heavier, have lower family income, are African American, or watch a great deal of TV. This was particularly pronounced for children for whom sugar-sweetened beverages are available at school. For African Americans, the decline in soda purchases at school associated with any differential tax (1.4 drinks during the school week) accounted for more than half of the decline in total consumption (2.6 drinks).
Overall, the magnitudes are small, which may simply be a consequence of the small tax differentials in place. Larger increases (such as 18 percent, as was under consideration in New York State in 2009) would have larger effects than any existing differential sales tax.
EFFECT OF PLACE OF PURCHASE
Most of our statistically significant findings apply to soda purchases at school. One reason this outcome may be more sensitive is that as tax rates rise, posted prices (inclusive of taxes) in cafeterias or vending machines may jump to higher rounded price points. Consequently, the effect of a percentage sales tax may be higher than at grocery stores, where the tax is applied at the cash register. This would affect lower-income groups more. Previous studies for other types of food have reported larger price effects on BMI among heavier and lower-income children and youths.19–21
Several more of our results would have been significant at the 5 percent level without the clustered sampling design effect described above. However, this would not change our conclusion that for the full population, the range of variation in taxes does not predict total consumption or BMI. Larger taxes could have more pronounced effects at the population level. Among children at higher risk for obesity, however, even taxes in the range of current rates can affect outcomes.
SODA TAX AMOUNTS
The range of existing soda tax rates is relatively small. That may arguably be the relevant comparison, as new taxes are likely to be relatively small. In that case, we should not expect noticeable behavior or weight changes for children in the general population. A greater impact of these small taxes could come from the dedication of the revenues they generate to other obesity prevention efforts rather than through their direct impact on children’s consumption of soda.
On the other hand, the combination of a continuing obesity epidemic and states’ financial difficulties in the economic downturn may lead to much larger changes. The 18 percent soda tax rate originally proposed in New York’s Executive Budget is much larger than existing tax rates. Our estimated marginal effect of differential taxes on BMI increases between third and fifth grades is −0.013 BMI units at the population level. If effects were linear, an 18 percent differential soda tax would correspond to −0.23 BMI units, or a 20 percent reduction of the excess BMI gain. No other anti-obesity policy has demonstrated a reduction of that magnitude yet, so our results do not imply that excise taxes would be ineffective at the population level—only that small taxes in the range of existing differentials are unlikely to have visible effects at the population level.
The economic theory of the design and effects of taxes is fairly clear, although the empirical evidence is limited and estimates cover a wide range.1
If reducing the consumption of sugar-sweetened beverages is the goal, rather than collecting money, taxes need to be linked to consumption. An approach such as that considered in San Francisco, which would collect a fixed annual fee from retailers in order to sell sugar-sweetened beverages, fails that criterion.
EXCISE VERSUS SALES TAXES
A specific excise tax would be preferable to a sales tax. A tax levied per ounce would be easiest to implement, although it is possible, but more complicated, to levy a tax based on sugar content. The latter will encourage substitution to cheaper, larger-volume products, rather than a reduction in consumption. Also, an excise tax is preferable to a sales tax because it would be incorporated into the shelf price, making the higher costs more visible to consumers.
Efforts to reduce obesity are accelerating, and a common target is reducing the consumption of sugar-sweetened beverages. For youth, initiatives so far have sought to limit the sale of soda in schools, but schools are only one source of consumption. We can expect that many localities will implement taxes on a variety of foods deemed “junk” foods, most likely starting with sugar-sweetened beverages, in the near future. To have a measurable effect on consumption, taxes need to be tied to consumption, and they need to be larger than the existing state variation in sales taxes.