Don’t Ban Big Gulps
Tax them instead. A new study shows that even small price differences can nudge us toward healthier beverage consumption.
Are consumers simply replacing nutritious yet caloric whole milk with empty-caloried soda? Across regions with different milk-pricing formulas, there’s no difference in the consumption of soda: It’s simply higher across the board for lower-income shoppers. (This also serves to reinforce the plausibility of one the study’s biggest assumptions: that regions with variable milk pricing don’t have other attributes that might account for higher consumption of lower calorie milk. It’s not as if people in San Francisco drink more soda than people in New York.)
Still, it’s a leap to go from an analysis of whole-milk consumption to an endorsement of taxation as a tool for social engineering. A stereotypical image of a milk shopper is a mom—possibly a price-conscious one—stocking up for her family; supermarket soda purchases may have a different set of customers or even invoke a different set of responses from a given shopper. (Milk is a staple, for example, and soda an indulgence.)
A pricing experiment run at a hospital cafeteria in Boston in 2008 provides at least some indication that soda taxes may also help change drinking habits, though taken at face value its results suggest that taxation may have to be aggressive to wean soda drinkers from their beverage of choice. A team of public health researchers convinced the hospital administration to allow them to raise the price of a 20-ounce regular soda by about a third (from $1.30 to $1.75). In the weeks that followed, regular soda consumption dropped by about 26 percent, and was accompanied by a nearly offsetting increase (20 percent) in diet soda consumption. (Unlike the milk study, however, it’s worth noting that the subjects of this study—cafeteria patrons at the Harvard-affiliated hospital—may not be representative of the average American.)
Taken together, these findings should make some adversaries of sin taxes at least reconsider their opposition. During his time as New York state governor, David Paterson proposed a sugar tax on the same beverages that Bloomberg hopes to ban in their 32-ounce form. The plan (supported by Bloomberg) was a nonstarter in large part because of fears of the impact on low-income soda addicts who would keep buying regular soda rather than the untaxed diet version. The findings of Khan et al. suggest that the income effects would be limited if a sugar tax creates even a modest price difference between regular and diet soda: Poor consumers will switch drinks rather than continuing to buy soda they can’t afford. While 15 percent might sound like a lot of sticker shock, society has come to terms with cigarette taxes that, in New York City, constitute over a third of the price per pack.
The study does emphasize that the taxes need to be careful designed to deliver maximum impact: Consumers respond less to taxes if they’re not listed in shelf prices and imposed only at the cash register. Cigarette taxes are folded into the price, just as gas taxes are at the pump. Harvard health economist Amitabh Chandra—one of the authors of the hospital-cafeteria study—also points out that, rather than taxing specific items like soda or ice cream, it would probably work better to literally tax fat or sugar content to minimize the chances that consumers would switch to other unhealthy foods.
None of this will be persuasive drink-free-or-die libertarians who oppose all such taxes as paternalistic, interventionist meddling. Nor is it likely to convince beverage manufacturers to reverse their steadfast opposition to any taxes on their drinks. But these studies may help everyone else to see soda, fat, and sugar taxes as a two-for-one of raising government funds and improving the health of Americans at the same time.