Matthew ChanningGordon Matassa

David SantosDr. WangPA 724

May 6, 2015

The Sweetness of Excise Taxes

Why Taxing Big Soda Is A Good Idea

1

Introduction

Increasingly, legislatures believe sodas and other sugary beverages to be the

culprits behind part of America’s increase in obesity and other health related

conditions. While big soda denies these claims, they, in truth, are not as sweet as

they would have the public believe. Through a chain of events, ranging from the

calculated and profitable, to the biological, sugary beverages create a health policy

problem for the United States in three distinct ways. First, these companies create

and enflame a social justice wrong that needs to be corrected. Second, the science

proves that these beverages create an addiction that feeds upon basic human

biological tendencies that cloud rational choice. Third, the health repercussions for

consuming these beverages are on the scale of a national pandemic, threatening

our future vitality. To address the effects of soda and other sugary beverages in the

lives of Americans, an excise tax should be levied to reduce consumption. Although

counter arguments exist against levying an excise tax, their merits and applicability

to the current state of health policy need to be carefully weighed.

Social Justice

The producers of sugary beverages target minorities, especially in low

socioeconomic communities. Through targeted advertising by these producers and

limited availability of fresh, healthy foods, sugary beverages and processed foods

remain a staple in the diet of many people in urban, suburban, and rural areas alike.

These communities have statistically higher incidences of obesity, diabetes, and

general poor health. Sugary beverages widen the socioeconomic gap between these

communities and those that are more affluent.

Targeting African American and Latino Youth:

2

        Studies show that sugary beverage companies focus their advertising on

minority youth and that government regulation may be necessary to protect

impressionable children from the effects of influential advertising. The concern over

sugary beverages is not new, especially with regards to children, but the lack of

significant restraint on the part of producers is creating a growing opposition.

Sugary beverage producers will do what is in their best interest to increase their

customer base, just as any other industry will do. But unlike other industries, the

correlation between sugary beverage ingestion and negative health consequences

creates a public health concern. This is why the sugary beverage producers of today

are often compared to the tobacco industry.

        Television advertising is an incredibly convenient means of reaching youth.

Researchers from the Yale Rudd Center for Food Policy and Obesity found that

within the two year period of 2008-2010, “ African American youth were exposed to

80 percent to 90 percent more television commercials for sugary beverages and

energy drinks, while Latino children were exposed to 49 percent more commercials”

than Caucasian children (Cheyne, Mejia, Nixon, Dorfman, 2014). Not only are sugary

beverage producers targeting children, but they are specifically aiming to reach the

African American and Latino populations. Cheyne, et al. (2014), claim that African

American and Latino youth “tend to live in neighborhoods with greater density of

convenience stores and restaurants that market unhealthy food [. . .] to children.” A

geographic area described as such is often called a food desert.

Food Deserts:

Food deserts are areas within communities where access to healthy, fresh

foods is severely limited. These are found in urban, suburban, and rural areas;

typically within communities of high diversity and low socioeconomic levels.

3

Neighborhoods such as San Francisco’s Bayview are food deserts because of lack of

grocery stores, leaving residents to rely on liquor and convenience stores for food.

These establishments rarely have fresh food and produce. Rather, their shelves are

lined with processed foods in bright packaging and their refrigerators stocked with

soft drinks and alcoholic beverages.

The Navajo Nation is 27,000 square miles, roughly the same geographic size

as West Virginia, with approximately 200,000 residents and no grocery stores. 42%

of residents are unemployed, with roughly half the population under the age of 25

years old living on less than the federal poverty line rely heavily on food from gas

stations and convenience stores (Clark, 2015). Unsurprisingly, the obesity rate is up

to 60% in some parts of the reservation, 10% of the residents are diabetic, and 30%

are pre-diabetic (Barclay, 2015). Some Navajo Nation residents have to travel

upwards of 240 miles (round trip) to buy meat and vegetables (Barclay, 2015).

Individuals living in food deserts have limited options and making healthy

food choices is expensive. In order to enact social change, Navajo Nation President

Ben Shelly signed the Healthy Diné Nation Act in 2014, enacting a tax on a sugary

beverages as well as processed foods considered to have “minimal-to-no nutritional

value” within the Navajo Nation (Barclay, 2015). Until fresh and healthy food

products are readily available and priced at rates equivalent to or less than

processed food and sugary beverages, taxes will help towards changing people’s

behaviors.

Many of those influenced by the sugary beverage industry are not even

aware of their influence or are not motivated enough to change their habits. A tax

provides a financial incentive to make changes in their diets and choose healthier

food options.

4

In a study of children aged 6-11 from 1989 to 2008, research shows that

children consume an average of 212 calories (kcal) a day from sugar-sweetened

beverages in 2007-2008. This is an increase of 182 kcal from the average of 130

kcal/day in 1989-1991 (Lasater, Piernas, Popkin, 2011, p. 4).

This

disturbing trend

provides further

proof of sugary

beverage

producers’ focus on

increasing

consumption

amongst

susceptible

populations.

Addiction

Adding to the complications these sugary beverages cause through obesity is

the fact that they are addictive. While the official criteria for addiction leave open

the prospect that any behavior can be addictive, soda and similar beverages

receive a boost in this department because of the amounts of sugar and other such

substitutes. The operating definition, used by the American Psychiatric Association

for addiction, is, “when a person continues to use a substance even when he or she

knows it's causing physical or mental health problems” (Mann, 2011).

5

Although soda and other such sugary drinks may have considerably less

caffeine than coffee and higher percentage drinks, they make up for addictive

power in their sugar content. This amount of sugar is troubling for those concerned

with addiction because sugar interacts with our body in numerous chemical ways

that make us want to have it. In effect, as humans, we are drawn to sugar and

cannot always make rational decisions about it.

Sugar is a compound our body craves for two reasons. It helps reach a new

high and it helps us to deal with stress. Rebecca Scritchfield, a notable dietician

related in a Huffington Post article how these process work. On the one hand,

“’sugar actually lights up the pleasure and reward center of our brain’ which helps

explain why we cannot get enough of it. During times of stress, we have a high level

of a hormone called cortisol, and we crave sugar because if we eat some sugar, we

will actually get another hormone called serotonin, which is calming and relaxing”

(huffingtonpost.com, 2014). These two scientific explanations highlight the fact that

an individual is not conscious of all their rationales for their decisions. In the case of

sugary drinks, a likely explanation for consumption is taste, yet below the surface,

the consumer may be treating their stress or chasing a good feeling.

Addiction is a very real byproduct of sugar intake. Biologically, we are

predisposed to seeking out sugar. But as the quantities of goods with high amounts

of sugar increase, our ability to ingest it when our bodies do not need to increases.

As these effects create the conditions to consume more, people may consume

sugar without purposefully meaning to.

Health Impacts

Obesity:

6

Portion sizes for soft drinks, among the major bottling companies, have

increased over the past few decades. For example, Coca-Cola bottled their soft

drinks, prior to 1950, in a standard 6.5 ounce bottle. Gradually, Coca-Cola began

introducing new sizes in the 1960’s from 10, and 12 ounce bottles (The Coca-Cola

Company, 2015). They continued to increase the size in the 1990’s to 20 ounces

and again in the early 2000’s to 24 ounces (Jacobson, 2005). This increase in

portion size allowed consumers to presume that one bottle counts as single serving,

not taking into consideration the amount of sugar that one bottle contains.

During the last several years it has become clear that soda and other sugary

beverages, like fruit drinks, have helped fuel the epidemic of health related issues.

For example, obesity and diabetes are just some of the underlying effects of

consuming these beverages, like soda, with a high sugar content/intake (Malik,

2010b).  It is estimated that roughly $190 billion is spent on treating obesity related

issues here in the United States (Begley, 2012). Money and resources that is spent

on something that can be prevented, shows that improvements can be made in how

we look at the correlation of soft drinks and weight issues. In 2004, the United

States Department of Health and Human Services released a report on dietary

guidelines stating that:

In summary, although the evidence is not large and there are methodologic

problems with this research, the preponderance of prospective data available

suggest that added sugars (particularly in beverages) are associated with an

increase in energy intake. As a result, decreasing the intake of added sugars

(particularly in beverages) may help prevent weight gain and may aid in weight

loss.

7

Obesity rates in the United States have increased for both children and

adults, where roughly 66% of adults and 33% of children are overweight or obese

(Center for Disease and Control Prevention [CDC], 2015). As studies have shown,

there is a link and association between the increases in overweight or obese

children and adults with their sugary drink consumption rates (Apovian, 2005). A

study published by the journal of Pediatrics followed 9,600 children, aged between 2

and 5 years, and evaluated the relationship between their sugar-sweetened

beverage consumption and weight status. Of the 9,600 participating children, “9.3%

of 2-year-olds, 13% of 4-year-olds and 11.6% of 5-year-olds consumed more than

one sugary drink a day” (Netburn, 2013). The researchers found that the children

who regularly drank sugary drinks were more likely to be heavier than their peers,

not to mention increasing their calorie intake by 17% to 20% (Netburn, 2013).

Diabetes:

As cases of obesity have been rapidly increasing in the United States, so have

cases of diabetes. The American Diabetes Association (2013) reported that, in 2012,

$245 billion was spent on treating Type 2 diabetes in the United States, up from

$174 billion in 2012. It is estimated that, “29 million people in the United States (9.3

percent) have diabetes” (CDC, 2014). Soft drinks are the leading source of added

sugars in the US diet, counting for 36% (United States Department of Health and

Human Services, 2010).

Sugar-sweetened soft drinks can increase risk of diabetes because, “they

contain large amounts of high-fructose corn syrup, which raises blood glucose

similarly to sucrose” (Schulze, 2004). In 2010, a group of researchers from the

Harvard School of Public Health put together a report with various findings from

independent studies to analyze the impacts of sugar-sweetened beverage

8

consumption on public health. They found that consuming just “one or two sugar-

sweetened beverages a day is associated with a 26% greater risk of developing

type 2 diabetes” (Malik, 2010a).

An article from The Journal of the American Medical Association found that

women who had a higher consumption rate of sugar-sweetened soft drinks had an

increased risk for developing

type 2 diabetes (Schulze,

2004). A total of 90,000

nurses, who were women,

took part in this study, over

a span of eight years. Nurses

answered whether they had

less than one or one serving

a month, several throughout the month, two to six servings a week, or one or more

daily. The study found that the nurses who answered to having one or more

servings a day, were twice as likely to have developed type 2 diabetes during the

study than those who rarely had these beverages” (Schulze, 2004).  

A study done in England followed 25,000 participants and evaluated their

sugar-sweetened beverage consumption rates and the risks of type 2 diabetes.

Researchers found that participants who drank and alternative to a sugar

sweetened beverage had a 14% lower risk of developing type 2 diabetes than those

who consumed one sugar-sweetened beverage a day (Healy, 2015). The study also

stated that every 5% increase in daily consumption sweetened drinks would

increase type 2 diabetes cases by 18% (Healy, 2015). Additionally, researchers

concluded that, “if people's average daily calorie intake from sweetened beverages

9

were below 10%, 5% or 2% of their total daily calories, 3%, 7% or 15% respectively

of new-onset diabetes cases could be avoided” (Healy, 2015).

The Use of Excise Taxes

Taxes are fundamental force in the modern society whose primary purpose is

to raise revenue for government services. Yet, there is a secondary purpose

inherent in taxation: changing consumer priorities. On this second point, taxes are a

tool for governments to exert influence in the market and make it a tool for general

policy. In the case of sugary beverages, the government may manifest its desire to

change consumption patterns by adding a tax per ounce on the beverage.

Economically speaking, taxes are a tool to change consumption patterns. As

Mankiw notes, rational people respond to incentives. These incentives can be either

rewards or punishments and spur people to choose certain actions over others

(2014, p. 7). With this understanding, taxes become a means for government to

guide decisions consumers make.

Already, governments experience the effect taxes have on consumer

behavior. European governments encourage smaller, more fuel efficient cars by

having high gasoline prices. Beyond simple consumption, however, these taxes also

change other behaviors. A higher tax encourages carpooling, moving closer to work,

and using public transit. (Mankiw, 2014, p. 7). As evidences, taxes do more than

change consumption patterns; they can incentivize other desirable behavior as well.

Under this model, controlling the price of a good is tantamount to controlling

the demand and supply of the good by creating incentives for or against its

consumption. When there are competing goods, the price of one will determine

supply and demand of another related good. Goods whose consumption increases

when the price of a related good goes up (and correspondingly its consumption

10

goes down) are substitute goods (Mankiw, 2014, p. 70). In this case, to incentive a

behavior or a consumption pattern, the government needs to work out a method of

discouraging another. For sugary drinks, one policy rationale for creating the tax

would be to incentive the public to consume healthier beverages such as water or

natural fruit.

Finally, when these costs are created, they most often ultimately fall on the

consumer of the good. This is true no matter which end of the transaction the tax is

applied because a producer of a good will always seek to recoup increases in

operating expenses from the purchaser. In Mankiw’s words, “this analysis yields two

lessons: Taxes discourage market activity. When a good is taxed, the quantity of

the good sold is smaller in the new equilibrium. Buyers and sellers share the burden

of taxes. In the new equilibrium, buyers pay more for the good, and sellers receive

less” (2014, p. 123).The decrease in market activity is self-evident. On sugary

beverages, the market would contract as consumers find the higher cost of the

drinks unequal to the benefit derived from them.

So why would the government want to decrease a market? Referring to the

gasoline tax as an example, market activities can be tools of legislatures to effect

policy. This may be desirable over creating a law because it allows for a higher

degree of consumer choice. Under a law, the person has no legal option but to

follow the law. Conversely, under a market system, the person can act as a

consumer, weighing the merits of a purchasing decision at the new market cost.

Thus, excise taxes ride on the same basic pervasive capitalist assumption, that we

purchase goods at a given rate that is similar to our assigned value to the good.

With a tax on sugary beverages, consumers can decide whether or not continued

use of soda is worth the financial burden.

11

This system of incentiving preferable alternatives is the basic principle of

taxing soda and other sugary drinks. It is a tool legislatures should add to their suite

when battling the ills of soda consumption. Over the following pages, this report will

justify the use of an excise tax on sugary beverages because of the negative effects

of that market. Additionally, to combat continued use, revenue from the tax can be

applied to education and addiction reduction efforts to reduce future demand.

Counterarguments

Personal Choice:

The opposition to the sugary beverage tax may claim that public education

would be a better use of resources than attempting to tax sugary beverages.

Financial deterrents raise costs and price people out of markets. Opponents often

use the same social justice arguments that proponents use, claiming that imposing

a tax directly affects low-income individuals by preventing them from making a

personal choice. To that same effect, proponents of the tax argue that sugary

beverage producers are also preventing low-income individuals from making

personal choices by offering their products at prices lower than the costs of healthy

alternatives.

New York City approached the United States Department of Agriculture

(USDA) about the potential to restrict the purchase of sugary beverages with money

from the Supplemental Nutritional Assistance Program (SNAP). New York City and

proponents attempted to use the current SNAP restrictions against alcohol and

tobacco purchases to support their case, but the USDA rejected their request on the

basis that it would be difficult to enforce, restricted items would have to be clearly

defined, and better evaluation of the overall issue needs to be performed (Barnhill &

King, 2013, p. 302). Opponents claim that such a move would create distributive

12

and social inequality for those on SNAP funds, causing embarrassment for them

because they can no longer purchase sugary beverages like everyone else (Barnhill

& King, 2013, pp. 302-303). SNAP recipients would be stigmatized over an idea that

does not have enough scientific proof to determine that sugary beverages are the

primary cause of obesity and diabetes (Barnhill, 2011, pp. 2038-2039).

Economically, there is no reason that a government subsidy such as SNAP

should be funding a product that leads to public health problems that will cost the

government more money. SNAP currently does not pay for alcohol or tobacco, so

there is no reason why it should fund other products that have deleterious effects

on human health. Individuals on SNAP assistance can still buy alcohol and tobacco

products, just not with SNAP funds. The same would be true of sugary beverages.

Education:

13

This increase in sugary beverage consumption correlates with the rise of

public concern over the effects of a diet rich in sugary beverage intake. New York

City took action to combat the growing influence of sugary beverages among its

residents back in 2006 by restricting the sale of such drinks on public lands

(including the public school system) and starting a media campaign to education

the public.

Between 2006

and 2013, adult

consumption of

sugary beverages

decreased from

35.95 to 23.3%

and high-school

aged youth

consumption

decreased from 56.7% to 41.5% (Kansagra, Kennelly, Nonas, Curtis, Van Wye,

Goodman, Farley, 2015, p. 61).

While access to sugary beverages was restricted in government agencies and

public schools, it was not prohibited and no tax was levied. Lack of availability and

an education campaign over the course of six years in New York City proved to be

enough to cause a significant decline in sugary beverage consumption amongst

adults and youth. This example proves that levying a tax is not the only means to

combating the deleterious effects of sugary beverage consumption.

The comparison to “Big Tobacco” and the slippery slope of taxes:

14

Many proponents of the sugary beverage tax compare the current climate to

the tobacco industry of years prior that specifically targeted youth and minority

populations, often referring to it as “Big Soda.” Smoking tobacco is scientifically

proven to be a direct cause of health issues such as emphysema and lung cancer.

Sugary beverages cannot be proven to directly cause obesity or diabetes. There are

too many other factors involved in a person’s diet that can also contribute to these

or other weight-related maladies, so sugary beverages only have a correlative

relationship.

Some argue, that without the direct scientific support, levying a tax on

sugary beverages will eventually lead to the ability to tax other food items that are

correlated to negative health effects. The question of “why tax sugary beverages

and not processed food snacks, donuts, or candy?” is a common rebuttal to the

argument for a sugary beverages tax. This is a logical fallacy known as “slippery

slope”: assuming that because sugary beverages are taxed then anything with

sugar will soon be taxed. This is a fallacy for a reason because it cannot be assumed

that more taxes on other sugary foods also occur. From a legal perspective,

though, taxing sugary beverages sets a precedent that would make it easier to

justify additional taxes on other products containing sugar in the future. Without

proof of direct correlation to obesity and diabetes, in the same respect that tobacco

use leads to lung cancer and emphysema, there is concern that a sugary beverage

tax could set a dangerous precedent that could lead to additional taxes on other

products in the future without significant enough correlations with health.

Conclusion

From the offices of sugar manufacturers down to the corner store on the

block, sugary beverages are creating a myriad of health problems for the United

15

States. With targeted advertising, the executives behind the drinks market their

beverages to specific audiences who have easily manipulated consumption

patterns. True, the companies may be able to escape culpability in which drink is

chosen, but the fact that they provide so much sugar only serves to help consumers

unknowingly, and unwillingly, to become addicted. Once addicted to these drinks,

the negative health effects mount and create a multi-billion dollar medical industry.

Sugar-sweetened beverages are the largest source of added sugar and an

important contributor of calories in the U.S., diet despite having very few to no

nutritional value. Armed with this knowledge, legislatures across the board are

justified in imposing excise taxes on these beverages. With this tool, governments

can reduce the quantity both demanded and supplied and turn Americans towards

alternatives with less dire consequences. Counter arguments for the excise tax

leverage the sanctity of personal choice and fear of future taxes, but there is

precedent against both of these claims that applies in this instance and diminishes

the weight of these arguments.

16

List of Works Cited

American Diabetes Association. (2013, March 6). Economic costs of diabetes

in the U.S. in 2012 [Abstract]. American Diabetes Association. doi:10.2337/dc12-

2625

Apovian, C. M. (2005, August 25). Sugar-sweetened soft drinks, obesity, and

type 2 diabetes. Retrieved from Arizona State University website:

http://epsl.asu.edu/ceru/Articles/CERU-0410-237-OWI.pdf

Barclay, E. (2015 April 1). Navajos fight their food desert with junk food and

soda taxes. National Public Radio. Retrieved from

http://www.npr.org/blogs/thesalt/2015/04/01/396607690/navajos-fight-their-food-

desert-with-junk-food-and-soda-taxes

Barnhill, A. (2011). Impact and Ethics of Excluding Sweetened Beverages

From the SNAP Program. Government, Politics, & Law. 101-11. pp. 2037-2043.

Barnhill, A. & King, K. (2013). Evaluating equity critiques in food policy: The

case of sugar-sweetened beverages. Journal of Law, Medicine, & Ethics. Spring. pp.

301-309.

Begley, S. (2012, April 30). As America’s waistline expands, coasts soar.

Ruters. Retrieved from http://www.reuters.com/article/2012/04/30/us-obesity-

idUSBRE83T0C820120430

Center for Disease and Control Prevention. (2014, June 17). Diabetes latest.

In CDC features. Retrieved from http://www.cdc.gov/features/diabetesfactsheet/

Center for Disease and Control Prevention. (2015, April 24). Childhood obesity

facts. In Obesity facts. Retrieved from

http://www.cdc.gov/healthyyouth/obesity/facts.htm

17

Cheyne, A., Mejia, P., Nixon, L., Dorfman, L. (2014). Food and beverage

marketing to youth. Metabolism. Springer. Retrieved from:

http://www.bmsg.org/sites/default/files/bmsg_food_and_bev_mktg_to_youth.pdf

Clark, L. (2015 March 25). Can the country’s first junk food tax reduce obesity

and diabetes on the Navajo Nation? Civil Eats. Retrieved from

http://civileats.com/2015/03/25/can-the-countrys-first-junk-food-tax-reduce-obesity-

and-diabetes-on-the-navajo-nation/

Healy, M. (2015, April 30). Diabetes rises with daily soda--including diet

soda--consumption. Los Angeles Times. Retrieved from

http://www.latimes.com/science/sciencenow/la-sci-sn-diabetes-soda-diet-

consumption-20150430-story.html

Huffington Post (2014). The science behind why you crave sugar when you’re

stressed. Retrieved from http://www.huffingtonpost.com/2014/08/20/why-you-crave-

sugar-rebecca-scritchfield_n_5694675.html

Jacobson, M. F. (2005, June). Liquid candy: How soft drinks are harming

Americas’ health. Retrieved from

http://www.cspinet.org/new/pdf/liquid_candy_final_w_new_supplement.pdf

Kansagra, S. M., Kennelly, M. O., Nonas, C. A., Curtis, C. C., Van Wye, G.,

Goodman, A., & Farley, T. A. (2015). Reducing sugary drink consumption: New York

City’s approach. American Journal of Public Health. 105: 4, pp. e61-e64.

Lasater, G., Piernas, C., Popkin, B. M. (2011). Beverage patterns and trends

among school-aged children in the US, 1989-2008. Nutrition Journal. 10: 103, pp. 1-

9.

18

Malik, V. S. (2010a). Sugar-sweetened beverages and risk of metabolic

syndrome and type 2 diabetes [Abstract]. Diabetes Care, 33, 2477–2483. Retrieved

from http://care.diabetesjournals.org/content/33/11/2477.full.pdf

Malik, V. S. (2010b, March). Sugar sweetened beverages, obesity, type 2

diabetes, and cardiovascular disease risk. Retrieved from National Institute of

Health website: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2862465/

Mann, D. (2011). Can you get hooked on diet soda? Retrieved from

http://www.cnn.com/2011/HEALTH/03/01/diet.soda.health/

Mankiw, N. (2014). Essentials of Economics (7th ed., p. 7, 70, 123). Mason,

Ohio: Thomson/South-Western.

Netburn, D. (2013, August 5). Sugary drinks cause weight gain in

preschoolers, study finds. Los Angeles Times. Retrieved from

http://www.latimes.com/science/sciencenow/la-sci-sn-sugar-drink-preschoolers-

20130805-story.html

Schulze, M. B. (2004, August 25). Sugar-Sweetened beverages, weight gain,

and incidence of type 2 diabetes in young and middle-aged women. The Journal of

the American Medical Association, 292(8), 927-934. doi:10.1001/jama.292.8.927

Stromberg, J. (2013). This is how your brain becomes addicted to caffeine.

Retrieved from http://www.smithsonianmag.com/science-nature/this-is-how-your-

brain-becomes-addicted-to-caffeine-26861037/?no-ist

The Coca-Cola Company. (2015). History of bottling. In The Coca-Cola

Company system. Retrieved from http://www.coca-colacompany.com/our-

company/history-of-bottling

United States Department of Health and Human Services. (2004, August 19).

Dietary Guidelines for Americans, 2005. Retrieved from U.S. Department of Health

19

and Human Services website:

http://www.health.gov/dietaryguidelines/dga2005/report/default.htm

United States Department of Health and Human Services. (2010, December).

Dietary Guidelines for Americans, 2010. Retrieved from

http://www.health.gov/dietaryguidelines/dga2010/DietaryGuidelines2010.pdf