What Would New Sin Taxes Mean for Bay Area Soda Consumption?
Drinking soda may not be an act of sloth or lust, but on Election Day San Francisco and Berkeley will vote on extensive sin taxes that could decrease soda consumption by an unprecedented amount.
San Francisco’s Proposition E would add a two-cent-per-ounce tax on all sugar-sweetened beverages, which is projected to generate between $35 million and $54 million in annual revenue, all of which would fund dietary health and anti-obesity programs. Ted Egan, San Francisco’s chief economist, projects soda consumption will decrease by 31 percent.
Berkeley will be voting on Measure D, a one-cent-per-ounce tax that could raise $1.5 million for the city’s General Fund.
If either measure passes, it will become the first successful soda tax in U.S. history. But how much would things really change? Even if consumption dropped by nearly a third, would it mean that the people who are drinking less soda had adopted a healthier lifestyle?
While Mexico’s junk food tax is attributed with causing a slump in sales by Coca-Cola, which highlighted the law in its disappointing third-quarter earnings report, no such law has passed in the United States. Still, economists can predict changes in consumer behavior based on previous elasticity of demand studies, which measure the effect of price change on consumption.
In a 2010 study done by Yale’s Rudd Center for Food Policy, researchers aggregated consumer data from 160 peer-reviewed studies and found that of all 15 goods in the study, soda was the most reactive to price change. Beverage Digest found similar numbers in 2013 when it announced that Coca-Cola sales dropped by 12 percent following a 14.6 percent price increase.
But the most extensive study on consumer reactions to price increases was done by Coronary Artery Risk Development in Young Adults. In 1985 it recruited 5,115 adults between 18 and 30 in four cities and tracked their purchases over 20 years. A 10 percent increase in soda price in Chicago; Minneapolis; Oakland; and Birmingham, Ala., led to a 7 percent drop in consumption among participants, leading the director of the study to say, “A substantial soda tax is probably the single most effective way we could reduce obesity.”
Egan’s projection is slightly steeper than that suggested by other research, but decreasing soda consumption is only a stepping-stone on the way to Berkeley's and San Francisco’s final goal. The end game for both cities is to create a healthier population. People may be binge-drinking less Mountain Dew, sure, but will they be any healthier because of it?
Eric Finkelstein, a professor at Duke University, tried to answer that question in a 2010 study published in the Archives of Internal Medicine. He used data from the National Consumer Panel to track purchasing patterns, then analyzed the relationship between beverage prices, consumption, and weight. Using computer-generated models, he tested the potential effects of both a 20 percent and a 40 percent tax.
At both tax levels, only the middle class experienced significant weight loss. Even though soda consumption decreased at a rate consistent with the price change at both low- and middle-income levels, low-income households were more likely to substitute sugar-sweetened beverages with other calorically dense foods.
It doesn’t matter if someone is consuming 31 percent less soda if it's being supplemented with 29 percent more lemonade laden with high-fructose corn syrup. That’s why Prop. E and Measure D expanded their definitions of “sugar sweetened beverage” to include all drinks containing added sugar and more than 25 calories per 12 ounces. This includes sport drinks, iced teas, juice drinks, and energy drinks, effectively removing all direct substitutions.
That hasn’t stopped the American Beverage Association—with funding from Coca-Cola and PepsiCo at its disposal—from launching a multimillion-dollar campaign painting both taxes as class issues.
The ABA’s San Francisco campaign, the Coalition for an Affordable City, conflates rising housing costs with the proposed increase in junk food prices, positioning big soda as champions of the poor and their right to purchase affordable calories. But as Finkelstein found, even at a 40 percent tax—far higher than what Prop. E proposes—annual food expenditures would only increase by $30.
Even though decreasing the consumption of sugar-sweetened beverages shows muddled results in terms of weight loss, Prop. E’s real power comes from strategically distributing the potential $54 million in tax revenue.
Aside from 2 percent used to pay administrative fees, all of the money would go toward funding student nutrition programs, gardening and cooking classes, after-school athletic programs, community wellness groups, and wellness committees focused on promoting healthy eating.
In other words, San Francisco isn’t just using Prop. E to limit soda consumption or eliminate the effects of big business in its otherwise indie town, but rather to holistically change the culture of consumption within the city.