Key Components of a Soft Drink Tax

Key Components of a Soft Drink Tax

What kind of tax

  • Excise taxes, levied per unit volume of soft drinks, such as a penny per ounce, are the most efficient and effective kinds of taxes.  An excise tax is built into the price and is readily noticed by consumers. Furthermore, excise taxes are easy for governments to collect.  They could be imposed at the bottler/distributor/importer level, mitigating the need for grocers to remember to charge a tax (and pay the government).  An excise tax would affect equal volumes of inexpensive store brands and more expensive national brands equally.
  • Ad valorem taxes are collected as percentages of the prices of products, like a sales tax.  These taxes are applied at the checkout counter and are largely unnoticed by consumers.  If they are noticed, they might encourage consumers to buy less expensive store brands or large containers (to get more for their money).  Sales taxes are opposed by retailers on the grounds of complexity and nuisance.  
  • Tax the calorie content: The tax could be a flat tax—such as 7 cents per 12 ounces—on all soft drinks with, for example, 35 or more calories per 12-ounce serving.  Alternatively, it could vary with the caloric/sugar content.  For example, an excise tax might be 0 cents for drinks with fewer than 36 calories per 12 ounces; 3 cents for drinks with 36 to 70 calories; and 6 cents for drinks with 71 or more calories.


How much to tax

  • In 2011 , 39 states (and the cities of Chicago and Washington, D.C.) levied small taxes on soft drinks sold in vending machines, grocery stores, or both. Most sales taxes range from 4% to 6% and excise taxes from $0.21 to $1 per gallon of syrup used for sodas.  Those small taxes have minimal or no effect on consumption, but larger taxes would reduce consumption. The New York State Health Department estimated that an 18% sales tax (or the equivalent in an excise tax) would reduce consumption by 5.9%.


Earmarking the revenue

  • All or some of the tax revenues should be earmarked to expand health promotion or health-care programs (and not just replace current funding), especially for low-income communities. Such programs could include nutrition and physical education in schools, improved school meals, providing free fruit and vegetable snacks to school children, safe walking routes to and from school, bike paths, basketball courts, health promotion media campaigns, state or local departments of health obesity prevention programs, and expanding health-care coverage.  Legislators might consider a portion of the money to go to other public programs (such as education).