The Battle Over Taxing Soda

http://www.nytimes.com/2010/05/19/business/economy/19leonhardt.html?src=busln

The Battle Over Taxing Soda

The classic way for lobbyists to defend their client’s interest is to insist that they are not actually defending their client’s interest. Really, they say, they are just looking out for ordinary Americans.

Tobacco lobbyists spent years fighting regulation by claiming to be defending individual freedom, not the profits of tobacco companies. Detroit’s lobbyists did much the same to push back against seat belt and pollution laws. Wall Street has spent months opposing the financial regulation bill in the name of families and small businesses.

The latest example comes from Coca-Cola, PepsiCo and the rest of the soda industry, which is trying to defeat a soda tax now before the District of Columbia Council. The industry has succeeded recently in beating back similar taxes in New York and Philadelphia, and in keeping one out of the federal health overhaul bill. But the Washington Council seems to be seriously considering a penny-per-ounce tax on nondiet sodas, energy drinks and artificial juices. Council members are set to vote on the issue next week.

This soda debate is probably going to be around for some time. Cities and counties, desperate to find money to pay for schools and roads, are starting to see a soda tax as a way to raise revenue. The tax also appears to be one of the most promising ways to attack obesity, given the huge role sugary drinks play in the epidemic.

“It’s wrong for the government to stand idle in the face of an epidemic of obesity that’s hurting the quality of life and the health of our residents,” says Mary Cheh, the Council member who has proposed the tax, “when we have policy choices in front of us that can materially affect the problem.”

The soda industry, of course, is fighting back with newspaper and radio advertisements, among other things. It says a tax would most hurt “hard-working, low- and middle-income families, elderly residents and those living on fixed incomes” and would destroy jobs. Ellen Valentino, an industry official, recently told The Washington Post that companies would spend “whatever it takes” to make their case.

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The argument for a soda tax is the same as the argument for a tax on tobacco, pollution or, for that matter, banks that take big, expensive risks. When an activity imposes costs on society, economists have long said that the activity should be taxed. Doing so accomplishes two goals: it discourages the activity, and it raises money to help pay society’s costs.

In the case of soda, those costs come in the form of medical bills for diabetes, heart disease and other side effects of obesity. We’re all paying these bills, via Medicare, Medicaid and private insurance premiums. Obesity has become a significant cause of our swelling long-term budget deficit.

And soda is a huge reason the country is so much more obese. The typical American consumes almost three times as many calories from sugary drinks as in the late 1970s. This increase accounts for about half the total per-capita rise in calorie consumption over the same period. Remember, many of these drinks have zero nutritional benefit — unlike meat, cheese or juice.

As Kelly Brownell, a Yale researcher, says, the link between obesity and soda is scientifically stronger than the link between obesity and any other type of food or beverage.

We’re drinking more soda for several reasons. Above all, the inflation-adjusted price has fallen 34 percent since the late 1970s, largely because it can be manufactured more cheaply than in the past. Meanwhile, the average real cost of fruits and vegetables has risen more than 30 percent, according to the Bureau of Labor Statistics.

Coincidentally, Ms. Cheh’s proposed tax would roughly reverse the drop in the price of soda over the last three decades, at least for the popular 12-pack of cans. An extra penny per ounce on a 12-pack would add $1.44 — or about 30 percent — to the current typical $4.75 price. (The tax rate would be lower for single-serve bottles and higher for bulk purchases.)

Most of the revenue would then be used to improve the miserable quality of many school lunches in Washington. One blog, Better D.C. School Food, has taken to documenting these lunches, with a series of photographs of bland bread, processed cheese and reconstituted beef.

So what about Coke’s and Pepsi’s arguments against the tax?

They are certainly right that less soda consumption could cost the soda industry some jobs. But it would eliminate jobs from the overall economy only if people put the money they had been spending on soda into their savings accounts. That’s highly unlikely. Instead, people will probably spend more on other food and drinks or, say, go to the movies more often — and create jobs in those industries.

The argument that the tax will hurt the poor is a little more serious. The average American now drinks almost a gallon of sweetened beverages each week. If the tax passes, any Washington resident who continued to do so would have to pay about $1.20 each week in soda taxes.

Yet even that number overstates the cost, because the tax would surely affect how much soda many people drank. One of the lessons of the recent rise in cigarette taxes is that big price changes can lead to big behavior changes, even with an addictive product like tobacco. Teenagers, the biggest soda drinkers of all, are especially price sensitive. People who cut their soda drinking from a gallon a week to merely three-quarters of a gallon — that’s still 96 ounces, more than twice the consumption level of the late 1970s — would be spending no more on soda than they are now.

I suspect that some Washington Council members, in the face of opposition from the soda makers and distributors, may be tempted to support a weakened version of the tax. One option would simply be to extend the normal 6 percent sales tax to sweetened beverages. Like food, they are currently exempt.

But here’s the problem with that idea: small tax changes don’t always change behavior, as a recent study by the RAND Corporation found. So a small soda tax could actually have a worse impact on some families’ budgets than a substantial one — by raising the price of soda without affecting consumption. No wonder the American Heart Association supports the penny-per-ounce proposal.

Such a tax would certainly raise the cost of living for some heavy soda drinkers, just as cigarette taxes have stretched the budgets of some smokers and mandatory seat belts have added costs to car production. But consider the benefits from those other public health initiatives. They have vastly outweighed the costs.

Someday, we will probably look back on our gallon-a-week soda habit the way we now look back on allowing children to ride without seat belts or listening to doctors who endorsed Camel cigarettes. We will wonder what we were thinking.

Coke and Pepsi, unfortunately, seem willing to do whatever it takes to delay that day.

E-mail: leonhardt@nytimes.com