Estimating the potential of taxes on sugar-sweetened beverages to reduce consumption and generate revenue

Abstract

Objective

Beverage taxes came into light with increasing concerns about obesity, particularly among youth. Sugar-sweetened beverages have become a target of anti-obesity initiatives with increasing evidence of their link to obesity. Our paper offers a method for estimating revenues from an excise tax on sugar-sweetened beverages that governments of various levels could direct towards obesity prevention.

Model

We construct a model projecting beverage consumption and tax revenues based on best available data on regional beverage consumption, historic trends and recent estimates of the price elasticity of sugar-sweetened beverage demand.

Results

The public health impact of beverage taxes could be substantial. An estimated 24% reduction in sugar-sweetened beverage consumption from a penny-per-ounce sugar-sweetened beverage tax could reduce daily per capita caloric intake from sugar-sweetened beverages from the current 190–200 cal to 145–150 cal, if there is no substitution to other caloric beverages or food. A national penny-per-ounce tax on sugar-sweetened beverages could generate new tax revenue of $79 billion over 2010–2015.

Conclusion

A modest tax on sugar-sweetened beverages could both raise significant revenues and improve public health by reducing obesity. To the extent that at least some of the tax revenues get invested in obesity prevention programs, the public health benefits could be even more pronounced.

Introduction

The concept of food and beverage taxes came into light with increasing concerns about obesity, particularly among youth (Brownell et al., 2009; Brownell and Frieden, 2009). Sugar-sweetened beverages (SSBs; beverages with any added caloric sweetener) have become a target of anti-obesity initiatives along with increasing evidence of a link between their consumption and obesity (Vartanian et al., 2007). Increased SSB intake is associated with weight gain and obesity (Vartanian et al., 2007; Malik et al., 2006) that translates into health, economic and social costs (National Center for Health Statistics, 2008).

Changing relative food prices through tax or subsidy policies is likely an effective and (for taxes) inexpensive public health instrument to improve nutrition. Prior research shows that changes in food prices can improve diet and weight outcomes, particularly among youth, lower income populations, and those at risk for obesity (Powell and Chaloupka, 2009; Smith et al., 2010). Experience from tobacco tax regulation highlights the power of price changes to affect purchasing behavior and public health (Jha et al., 2006). In addition to direct price effects on purchases, tobacco taxes have generated significant revenues that some states have used to support comprehensive tobacco control programs that further reduced smoking (Chaloupka, 2010).

Economic studies have examined the impact of prices on beverage consumption, consistently finding that higher prices lead to reduced consumption (Powell and Chaloupka, 2009; Smith and al., 2010). A recent review predicted that a 10% price increase for soft drinks would reduce their consumption by 8%–10% (Andreyeva et al., 2010). Researchers also looked at the impact of existing taxes on beverages. As of 2009, 33 states applied a sales tax on soft drinks, but rates were small (range, 1%–7%) and designed to generate revenue rather than influence consumption (Chriqui et al., 2008). In the few studies to date, such small taxes have shown little to no effect on beverage consumption and obesity (Powell et al., 2009; Kim and Kawachi, 2006; Finkelstein et al., 2010; Sturm et al., 2010).

Another approach to beverage taxation is an excise tax (a fee per beverage unit) that has received increasing consideration among legislators, public health advocates and the media. The Congressional Budget Office (CBO) suggested a federal excise tax of ¢3/12 oz on SSBs to fund health care reform and estimated its revenue as $50 billion over 2009–2018 (Congressional Budget Office, 2008). Several states and cities have attempted to institute an excise SSB tax, unsuccessfully so far. The most common proposal is a penny per ounce tax on beverages with added sweeteners (Brownell et al., 2009; Brownell and Frieden, 2009). Several states already impose small excises, license or privilege fees on beverage bottles, syrup, powder/mix that are paid by wholesalers, distributors, retailers and/or manufacturers (ImpacTEEN, 2009).

Accurate estimations of revenue from beverage taxes are important to public officials in budget planning, but also challenging methodologically. Deriving accurate estimates must include best possible precision on regional variation in beverage consumption, the expected impact on consumption, and historic trends. The aim of this paper is to offer a method for estimating revenues from an excise tax on SSBs and diet varieties that governments of various levels could expect immediately and in the future.