THE IMPACT OF SODA SALES TAXES ON CONSUMPTION: EVIDENCE FROM SCANNER DATA

I. INTRODUCTION The prevalence of adult obesity in the United States has steadily increased over the years. On the basis of the data available from the Centers for Disease Control and Prevention (CDC), the percentage of obese adults in the United States has increased from 20% in 2000 to 27.5% in 2010. (1) Americans consume about 25%-30% more daily calories today than they did 30 years ago (Finkelstein, Ruhum, and Kosa 2005). There is evidence that the large increase in calorie intake has been significantly fueled by soda consumption. For instance, the USDA Dietary Guidelines for Americans (USDA/HHS 2010) indicated that in terms of percent of calories from total added sugars, the largest source of added sugars in the American diet (36% of added sugar intake) are sugary drinks (soda, energy drinks, and sport drinks). (2) Consistent with this observation, several studies have shown how the consumption of soft drinks has significantly contributed to the increase in obesity, leading to a higher incidence of various diseases such as diabetes, heart disease, stroke, hypertension, and cancer. For instance, Libuda and Mathilde (2009) in a review article find that prior research has consistently reported evidence in support of a causal relationship between soft drink consumption and excess weight gain. Similarly, the meta-analysis conducted by Vartanian, Schwartz, and Brownell (2007) points to a clear association between soft drink intake and both larger energy intake as well as increased body weight. In addition to the scientific evidence on the effect of sugar consumption on obesity, it is important to note that soft drinks have a very limited nutritional value. These two facts have propelled policy makers in several states across the United States to propose the imposition of a tax on soft drink consumption. Policy interventions that modify the price of a good are justified by the degree to which market failures exist in a given industry (Cawley 2004; Finkelstein, Ruhm, and Kosa 2005; Kim and Kawachi 2006; Marshall 2000; Powell and Chaloupka 2009). In the case of soft drinks, there are several indirect costs associated with their consumption; these expenses manifest themselves most evidently through the increased health care costs of treating diseases caused by obesity, taking several forms such as higher health insurance premiums for all individuals and higher health expenditures by the government. (3) Additional costs may include productivity losses (Cawley 2004). Further, some people may have time-inconsistent preferences that would require public interventions (Powell and Chaloupka 2009). For instance, it has been shown that children often do not take into account the future consequences of their actions, and that people, in general, may not appropriately discount the future costs of their behaviors (Komlos, Smith, and Bogin 2004; Smith, Bogin, and Bishai 2005). Excise taxes and special sales taxes on soda are already in place in 35 states (Bridging the Gap 2014). (4) The carbonated soft drinks (CSD) industry has succeeded in avoiding a soda tax to be included in the recent national health reform. New soda taxes have recently been proposed in at least 14 other states, though none of these proposals have yet been approved (Tax Foundation 2011). (5) The most effective way in which this tax should be imposed is not clear. Different proposals have been discussed, and they differ substantially across states. For example, Mississippi is considering legislation that would tax the syrup used in soda production while the state of New York, in its proposed state budget, recommended a penny-per-ounce tax on sugary beverages. A one-cent-per-ounce tax was imposed on sugary drinks, including soda, in Berkeley, CA, 2014. In Washington State, legislators approved a two-cent tax on every 12 oz of soft drinks sold. The overarching political argument is based on the economic rationale that price increases caused by higher taxes will dampen soda (and consequently sugar) consumption. …