Raising Taxes on Soda

Here’s an idea to lower health care costs.  Raise taxes!  Selectively, of course.


There is a long history of using tax policy to encourage or discourage behavior.  The best example is probably cigarettes, where a combination of taxes and penalties assessed against the tobacco companies has raised the price of cigarettes to $7 per pack.   This has been great news – because cigarettes are now out of financial reach of many teenagers.  Thus, the supply of younger smokers is dwindling .  Taxes on cigarettes put valuable dollars in federal and state government coffers – and they also decrease health care costs (including costs of Medicare and Medicaid paid by federal and state governments) by decreasing cigarette-related illness.   This is a real win-win.

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Thomas Frieden, New York City’s Commissioner of Health,  is a coauthor of an article in the April 30 New England Journal reviewing the case for increasing taxes on sugared beverages.   The authors note the excess cost associated with obesity ($79 billion per year, which looked like real money until the recent financial crisis), and the structural problem that the costs of fresh fruits and vegetables have gone up for more than the costs of carbonated sweetened beverages.  New York is in the vanguard of considering such a tax.


The authors' conclusion:


A penny-per-ounce excise tax could reduce consumption of sugared beverages by more than 10%. It is difficult to imagine producing behavior change of this magnitude through education alone, even if government devoted massive resources to the task. In contrast, a sales tax on sugared drinks would generate considerable revenue,and as with the tax on tobacco, it could become a key tool in efforts to improve health.