Why soda taxes are a bad idea

I heard a report on NPR Tuesday afternoon about the possibility of soda taxes as a mechanism to discourage people from drinking too much soda and thus affecting their health. This is a thoroughly inefficient idea.

First, adding a special soda tax will create hardship for retailers, who will have to keep track of this special rate. I have far more sympathy than I used to for this kind of red tape, now that we have up to 7 different sales tax rates to track in our own county alone. Any bureaucracy like this costs businesses time and money which they do not need to lose.

Second, if the goal is to reduce sugar consumption, have fun defining just which drinks are too sugary and need the tax. Sweetened fruit juices? Drink mixes? Energy drinks? Chocolate milk? A kid chugging chocolate milk every day is getting too much sugar; why pick on just soda? There will be lots of money spent wrangling over the right definition, and it will end up being arbitrary and ineffective.

Third, it is not likely to work and will just be an economic drag on individuals. Presumably the idea is that a higher price will affect buying habits. To convince people to buy a smaller enough amount of soda to actually affect their health, that tax will have to be huge, which is not politically likely. Otherwise it will just suck money from individuals’ budgets in the form of somewhat higher prices, but not actually change anything in a meaningful way.

Fourth, it’s a wasteful and roundabout way to achieve the desired economic influence. The core problem with over-consumption of soda is that it’s cheap. Taxing it does raise the price. However, the actual basic reason it’s cheap is because we heavily subsidize its primary ingredient, corn (for corn syrup). Reform ag subsidies such that they support the farmer but not the commodity, and you achieve the same economic effect of higher soda prices, but in a way that costs the government LESS time and money, not MORE.

Levying a new tax that requires new compliance, new bureaucracy, and new costs, is far less efficient than simply changing the government program that creates the problem in the first place. Otherwise we’re using government action at both ends of the issue to create competing economic incentives, rather than just streamlining the system. No wonder government grows inexorably; the only solution we can think of to fix a problem created by a specific policy is a new, different, and conflicting policy to counteract it. Someday maybe we’ll learn just to fix the problem in the first place.

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