Soda taxes have been proposed as a means to induce healthier consumption, and to cut down on costly related diseases like diabetes in the process.
A new study finds only the middle class — not the rich or the poor — are likely to change their behavior with a soda tax. Opponents of so-called soda taxes often argue that they would disproportionately punish low-income people. The poor buy more pop than the rich, who you’d more likely find in line at a fresh-fruit smoothie bar than in the carbonated beverage aisle at the grocery store, the thinking goes.
But a new study examining the potential effects of hefty taxes on sugary beverages — such as those that have been considered in New York, Colorado and California — specifically looked at different income classes and found a pair of surprising results. Low-income groups aren’t financially hit much harder than high-income households (the average cost to any family of a tax as high as 40 percent would be only about $28 a year). And neither group loses much weight in the process, the theoretical goal of having soda taxes in the first place.
Such taxes have been proposed as a means to induce healthier consumption, and to cut down on costly related diseases like diabetes in the process. But the new study, published in the Archives of Internal Medicine, suggests it’s actually the middle class that would shift behavior the most, picking up only a modest health benefit.
“I probably would have guessed that rich people would be least affected by the tax,” said lead author Eric Finkelstein, an economist and associate professor of health services with the Duke-National University of Singapore Graduate Medical School. “They don’t care. It’s not a ton of money; it doesn’t make a difference for them.”
A tax of any rate — Finkelstein simulated both a 20 percent and 40 percent increase — isn’t likely to change their behavior. Lower-income households, on the other hand, may well be adjusting their behavior in reaction to higher sugary-drink prices, but not in line with the healthier eating habits policymakers hope to encourage.
Finkelstein posits that lower-income families spend less money on food anyway, so a 20 percent tax on a $1 item makes little impact. But families might also be spending that money on substituted items equally high in calories — or spending that money on the same items a little more strategically.
“For the lower income group, they’re a little smarter in their shopping. They buy generics; they look for sale items,” he said. It’s possible a soda tax is “just forcing them to be a little smarter in how they do shop — they bulk up when sales come on; they switch to generics.”
Given the likelihood that consumers would simply switch to equally unhealthy products, Finkelstein suggests that the most effective beverage tax would be one that cuts a wide swathe through the grocery store, targeting not only carbonated soda, but also sweetened fruit juices and sports and energy drinks. The study simulated both types of taxes.
The researchers relied on data from the 2006 Nielsen Homescan panel, in which a national sample of households transmitted their weekly food and beverage purchases for a year. Using the wide price variation that naturally occurs through sales, shifting supply and demand, and across geography, the authors simulated the different tax scenarios.
The net benefit of the soda tax across all income groups turns out to be small, but the tax may still be a policy idea worth pursuing, Finkelstein said.
“My general feeling is the decisions on whether or not to tax soda should be based more on the subsidy issue,” he said; unhealthy sugary drinks are cheaper in the grocery store in the first place because the ingredients that go into them are heavily subsidized by American farm policy. “If market prices reflected supply and demand, [soda taxes] would be less of an issue. But because we subsidize corn and soy, the tax question is more relevant.
“I would argue if you are going to do these taxes, you should tax soda and tax all the other products that are cheaper as a result of these farm subsidies.”
He’s talking about a raft of items — candy, sugared cereal, just about everything in the junk food aisle.
“Those are the things whose prices are less than they would be without the subsidies,” he said. “If you did that, you’d probably see a greater change in behavior and more weight loss. But to me, that’s secondary to the subsidy issue.”
Of course, if state governments are going to tax all the edibles that the federal government already subsidizes, there might also be a more straight-forward way to boost the prices of sweets in the grocery store.