Why a Soda Tax Proposal is Taxing
Decatur Metro | February 15, 2010What’s become of me? There once was a time when I’d have been all over something like this.
A tax on soda was one option considered to help pay for health care reform (the Joint Committee on Taxation calculated that a 3-cent tax on each 12-ounce sugared soda would raise $51.6 billion over a decade), and President Obama told Men’s Health magazine last fall that such a tax is “an idea that we should be exploring. There’s no doubt that our kids drink way too much soda.”
But with all the junk food and U.F.O.’s (unidentifiable food-like objects) out there, why soda? Why a tax? And, most important, would it work?
But before we all jump on the Captain Obvious-sponsored “Soda Isn’t All That Good for You” bandwagon, perhaps we should recognize this solution for what it really is: LAME.
The problem here isn’t the sugary drink itself, but the much wider prevailance of cheap, sweet calories. Soda is NOT the new tobacco, as the New York Times wondered yesterday, because soda is just one of many forms that cheap calories take. Tobacco, on the other hand, is clearly tobacco, for better or worse. Period.
The problems with tobacco are well-known, and needless-to-say, stem from the addictive and cancer-causing aspects of the plant itself. The problem with soda of the other hand, isn’t from mere exposure to it, but from its cheap proliferation.
And why is it so cheap, locavores? Government agricultural subsidies.
So, what a potential tax on soda actually symbolizes is NOT actually the government’s increasing willingness to tackle nationwide health problems like obesity, but an unwillingness to tackle a problem at it’s actual source. Floating the idea of a tax on soda is essentially our politicians admitting they can’t stand-up to big agribusiness and say “We need to rethink these massive federal subsidies.”
Don’t be fooled by quick fixes. Our poor national diet won’t be remedied by taxing a single item, who’s biggest sin is being too inexpensive for our own good. We need major food reform and no one on either side of the aisle seems eager to take it on.
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So your solution would be to increase the cost of food? Don’t get me wrong, i’m against sin taxes and government subsidies, but that line of thinking makes little sense. Furthermore, sin taxes are not put in place to curb the behavior, they are put in place as revenue generators, period. These legislatures couldn’t care less about our heath.
How can you be against sin taxes and government subsidies, but be against an increase in the cost of food?
Sounds like eating your government subsidized cake and eating it too!
Your point was to increase the cost of food in order to curb the consumption of soda. That is not the best solution. Furthermore, government subsidies encourage farmers to farm certain crops; not anything they want. In doing so, the price of some items go up and some go down. With no government subsidies, the free market would determine what crops should be more expensive than others. So, yes, some crops may be more costly, but that would be determined by market demand, not government bureaucrats.
Well, actually my goal would be to make food cost what it actually costs to produce it. Or if you’re going to give out subsidies, try not to give it all to the corn lobby. At this point, either of those would be an improvement over the current system.
Agreed
You think all the people at the Iowa caucuses are big agribusiness? Sure, ADM lobbies hard. But each and every farmer out there wants his share of federal money. It’s disgusting that we keep sending it to them. But even so, I find it doubtful that ending those subsidies will yield the kind of food choices you want. Fact is, people like sugar, fat, fried food, etc. All else eual, they are still going to eat it.
Not that we should view it as a problem. I would prefer that we start respecting individual autonomy. The answer, I know, is that we are paying fr each others’ health care. That’s the point — when government subsidies come at the expense of basic personal freedom, please stop the subsidy. We used to favor freedom over security. Now it’s the opposite. Which means we’ll soon have neither.
In any event, taxing soda is exactly the kind of simple minded solution that has zero chance of accomplishing anything.
I’m with you on reforming our food industry – a major overhaul is exactly what’s required. But just a quibble: soda could be even cheaper if it weren’t for sugar tariffs that are designed to help Florida sugar farmers, since soda companies would be happy to make soda with sugar (as they do everywhere else on the globe). High-fructose corn syrup (subsidized by the government, yes) is used because it’s cheaper than sugar, but this is an artificial price comparison: sans tariff, we’d have only sugar sodas.
But this is all moot anyway, and here’s why: costs for soda would stay exactly where they are, since the sale price is not set with reference to production costs; even with the sugar tariff, a can of high-fructose-sugar-water costs only a few pennies for Coke to produce, but that same can sells for a buck in a convenience store. In El Salvador, it costs pretty much the same to produce the stuff, but you buy it for ten cents a bottle. Why the difference? Supply and demand. The price is set wherever corporations can maximize their profits but people will still buy it, and if it costs even less to produce it because we repeal the sugar tariff, then that’s extra money in Coke’s pocket. They won’t ever decrease the price – unless, of course, they need to gin up demand. If the sin tax makes people stop buying as much coke at slightly increased prices, Coke will simply reduce the price by that much and restore previous demand. It will probably work out in the end to be a tax on Coke and other producers of sugary products, not a tax on consumers (unless the consumers don’t mind the price hike, and then it’s just a tax on them). Coke’s making money hand-over-fist, and it seems that some folks are trying to get some of that huge sum to help pay for the “externalities” (or negative societal side-effects) of the company’s product (like getting a butcher to pay to clean up safely the potentially unhealthy waste products from the butcher’s economic activity). And how big is this target? Get this: Coke’s year-long profit last year was $6.82 billion.
Again, I am completely with you – what we need is comprehensive reform, and now. But look at congress – we’re getting nothing comprehensive from them anytime soon. What this could be in the short-term is an attempt to get Coke to pay for the side-effects of their own success. I don’t think it will solve much, but perhaps it’s better than nothing?
The “side effects” of Coke’s success presumably comes from health care costs, which would be borne entirely by the soda drinkers if not for the government stepping in to mess up the market for health care. Not exactly your classic externality. Without third party involvement there would be no externality at all. And, of course, your “best case” solution results in many people being taxed to death to pay for health care and then ponying up yet another hefty tax to enjoy a lousy soda. Who’s going to remedy that side effect?
By the way about 40% or more of Coke’s sales are zero calorie (or close to it) drinks. You still want to confiscate most of that profit? Not to mention that a majority of KO’s money comes from overseas, especially Japan, where, as far as I know, there’s no obesity epidemic. They drink soda with fish, we drink it with KFC and Burger King. Maybe the availability of soda is not such an important factor.
DEM, I think you’re looking at this from a political perspective instead of an economic one.
Government “stepping in to mess up the market for health care?” You know there’s an anti-trust exemption for health care insurance corporations, right? How is that anything like a free market? Health care never was a free market and never will be – the barriers to entry are far too high (you have the time to train to become your own doctor?) and nobody except doctors has the ability to make reasonable decisions (you think if you’re having a heart attack you’re going to compare prices between potential providers and then make a decision based on rational economic factors?) And you know that of all the options on the table for health care reform right now, none of them involve taxing anybody to death (there’s the Senate Bill which taxes ‘cadillac plans’ and the House plan which surtaxes people making over $500,000, which isn’t going to take away anybody’s last couple of pennies). By the way, getting health insurance for people who don’t have it will help us all out, since we’re paying for their care in ERs anyway, and that’s far more expensive.
And the externality is people becoming very obese, and part of this is to blame on sugary drinks (not all or even much of it, but some of it). Sugary drinks are addictive, and marketing helps sell more coke cans, too. Lots of folks are suffering diabetes, and you’re paying for their care, too, since health insurance premiums go up as we get sicker as a country.
I think people need to realize that (1) there’s no free market for health care anyway, and (2) you’re already paying for all these problems, and these legislative suggestions are meant to help you bear less of the cost. Maybe they’re not the best possible ways to fix these problems, but I’d like to see any of us come up with politically and fiscally feasible alternatives.
“And the externality is people becoming very obese, and part of this is to blame on sugary drinks”
NO NO NO, the blame rests with the PEOPLE who drink them. The little bottle sitting on the shelf doesn’t hurt anyone. It’s the individual who buys it and drinks it that is to blame. It’s time to start taking responsibility for our actions and quit blaming everyone or everything else.
BTW, there are many politically and fiscally feasible alternatives to govt. intrusion of health care, and if I wasn’t so tired, I would lay them out for you. Maybe tomorrow!
About Coke: I’m not saying this has nothing to do with the consumers. Sure, they’re buying stuff that hurts them, and they have the choice to buy it or not, etc. But Walrus, you and I are picking up the tab for this behavior, because the way we do health care right now, that exploding sound you hear is your insurance premiums skyrocketing. So while you are worrying about who’s fault the problem is, this proposal is trying to figure out how it might not be your financial problem at all. Somebody’s got to pay for it, and right now you’re holding a big part of the bill. If we encourage Coke to produce healthier products with financial incentives, they may do so, and that would help their bottom line and ours, too. Like I said, I don’t really think this is a great idea, but at least it is an idea. Moralizing about whose fault obesity is won’t help you pay that bill at all.
And Walrus, when you talk about “Govt intrusion of health care”, you are describing the situation that we already have. Health care in the US is already – as in right this very second – controlled by intense government rules and oversight. As I said, there is an anti-trust exemption in the health care insurance industry – I feel like I am not making sense, so let me put it this way: health insurance is right now allowed to be an anti-capitalist, government-sponsored monopoly. Again, the health care sector is not capitalist. The government intrusion you speak of is the government intruding into something it already set up. It’s like saying you walked in on yourself in the bathroom: it doesn’t make sense. And, no, there aren’t any politically feasible alternatives, because these two bills barely passed, and probably won’t even go to conference, so no, this was as politically feasible as they could get and even that wasn’t enough. In terms of fiscally feasible alternatives, there may be some, but they couldn’t possibly get through congress. So we continue with our anti-free-market, anti-capitalist, anti-choice, government-created and government-sponsored monopolistic system. If you prefer this current system to an exchange that allows for free-market competition, then you shouldn’t support either of the bills on the table.
You are right, the situation we are in now has been caused by govt. intrusion. So the question becomes, do we fix it with more government intrusion or less. The free market is not involved in healthcare right now. When a third party pays for every service, no one cares about how much it costs. If a third party paid for everyone’s groceries, why would we care how much a loaf of bread costs. In turn, we would want the best quality bread and a lot of it every time we went to the grocery store (which would be often). The prices of all groceries would go up because your “food insurance” is paying so no one knows how much anything is anyway. Call your doctor’s office and ask how much a certain service is, bet they can’t tell you. No one shops around for non-emergency services; a third party is paying! So, you are right, govt. has long been involved in health insurance. If we want it corrected, it’s time for them to get out.
BB, the only party that can grant an antitrust exemption is the government. Government also already pays something like 40% of all healthcare costs. And of course, it’s government that made the most boneheaded decision of all, i.e., to tie health insurance premiums to employment by giving a huge tax break for them. So you are correct, the health care market is not free, and that’s almost 100% because of government. Now we’re proposing to make it worse by mandating that insurers accept obese people, when, in a sane world, they’d be free to reject the habitual soda drinkers, or charge them commensurate premiums. Thus, the people with the bad eating habits pay the costs. Not me and you.
In any event, whether the health care market is free isn’t really my point. It’s that we need to but out of each others’ personal decisions, like what we each choose to drink. This is a perfect example of how more government equals less freedom.
In the end, I love the logic here, stemming mostly from the policitcal left. They say we all have a fundamental “human” right to health insurance at others’ expense. But we don’t have a human right to choose what we want to drink and eat. Some bargain.
DEM and Walrus, it sounds like y’all are really into politics, which is all fine and good, but let’s set politics aside here for a moment. Let’s not throw around “liberal” or “conservative,” because I am not really in either camp. Lets look at the data: we’ve got to get past these government-versus-the people-and-corporations frames, because they over-simplify and this distort the actual data. First, about food: farming subsidies and tariffs (both are forms of government intervention) exist as they now do because some agribusiness corporations have been very effective at lobbying the goverent to involve itself in the agriculture sector in a way that benefits them and hinders others. For example, the sugar tariff exists only because a group of Florida sugar farming corporations have a very successful and expensive lobby in Congress. Likewise, the corn subsidies really help ADM more than they help any individual farmer. And it’s even more complicated, because the half century of corporate-lobbied government subsidies and tariffs have shaped the modern agriculture sector; if the government were to just
“get out” immediately from the agriculture sector, there would be a collapse of farms, etc. An immediate shift to a completely free market would destroy the American economy (because it is built on the expectation of the current government-directed system), and no one wants collapse. No one is going to cast the vote to kill the American farming system. What needs to happen is a huge overhaul that includes government intervention; this is because the government (at the behest of lobbying corporations) broke the agriculture system, and only it has the ability to help re-shape it in such a way that the government can eventually end subsidies. If I had my way, we would actually encourage local farming, local crops and local consumption of these goods with tariffs and subsidies, but immediately put in place a schedule whereby these subsidies would be phased out, so that farmers could get their feet under them and then plan on going solo.
Second, about health care: DEM, I know that the government is the one that grants antitrust exemptions; I just argued that government set up this system, so the “keep govt out of health care by keeping the status quo” argument doesn’t work. I’m for ending anti-trust exemptions, I am all for the exchanges, and I am very much in favor of untethering insurance to employment. We are in complete agreement about those things. And, strangely, these are all things that supposedly “liberal” congressional folks support, and most of these are options on the table. What we disagree about is this: you suggest that we can simply “butt out” of each other’s lives. We can’t – for many reasons, only one of which is this fact: health care is an insurance-driven industry, and insurance is a group problem, not an individual one. We have a serious problem with what we call “freeriders” in the health care system – these are uninsured folks who show up at emergency rooms when they have serious problems that cost a lot of money to fix, and then they leave without paying. That’s your problem, whether you like it or not, because your health care payments are in part picking up that crazily expensive tab as well as your own. You can’t just butt out of other people’s lives, because we are a society, and other people’s problems tend to butt into your life just like your problems tend to butt into theirs at times. We need to realize that externalities are real things, and focusing on solving problems requires a group effort, not just more individualization. We can’t ignore these problems or just blame them on other people and the government and sulk. Solving them requires our participation, too. That’s not a ‘liberal’ thing, it’s an American thing: remember, we’re a participatory democracy.
I agree with many of BB’s comments above. I don’t have much time to write, since I need to get back to seeing patients and telling them to quit drinking sodas. But as a doctor practicing primary care, it is almost impossible to have a health care system currently where everyone is entirely independent and you do not have to pay for others. The only way to do that is to not have insurance and to pay for everything yourself. Doctors offices and hospitals do accept that, and despite what is said above, we know exactly how much you would be charged for it. My issue when people say that, is that they still want to be treated when they get in a car crash or or develop a catastrophic illness not of their own doing. You can’t say that you don’t want to pay for anyone else, and be on your own, then expect the infrastructure to be there when you need it.
I’m not trying to tell people to go and leave the health care system, and I don’t care about them; I’m trying to say that you can’t have it both ways–that you don’t want to pay tax dollars to keep Grady open, then complain about having to be flown to Macon for a severe car wreck. Yes, the current system is broken, no I don’t claim to have the answers. But I know that it’s not working like this, and I personally don’t like an entirely free-market model, since people will decide between living and dying based on cost (and they will; I have patients make cost decisions daily). And because the number 1 reason for bankruptcy in this country is health care costs, we all pay for it as a society. So as a society we need to come up with a better health care model; every man & woman for his/herself doesn’t work in reality.
Fixing the obesity epidemic is a different challenge that I don’t think a soda tax will fix, as you all have outlined above.
“Doctors offices and hospitals do accept that, and despite what is said above, we know exactly how much you would be charged for it.”
That is absolutely not what my experience experimenting has been. EVERY doctors office I (and others I know) have called were unable to tell me how much basic services cost. I applaud you and your office for having these answers but I’m afraid you are in the minority.
I think it’s likely that the person talking to you doesn’t know the rates. I personally don’t know the rates for everything in our office, but the billing people do, as they would have to in every office, have someone who knows how much things cost if you pay “cash,” ie. no insurance. There is a specific rate charged for everything in the office. Of course, the rate what insurance pays is very different from that stated rate that we bill, so that can change–but that’s because of our health care system’s private insurance setup, not dependent on the office.
No Reply link on your reply below, but…you say that you don’t know what different services cost, but your billing staff do – that’s too late in the process. Not to single you out, as I think this problem is pervasive, but without such knowledge, how can you make effective cost-benefit comparisons for your patients?
Ideally, we’d live in a world where a physician could say: option 1 costs $200 has a 99% effectiveness rate, and X side effects, option 2 costs $50 and has a 90% effectiveness rate and Y side effects.
Until we have both patients and physicians taking ownership for the costs and benefits of healthcare choices, we’re going to have more of the same good, but increasingly unaffordable healthcare in this country.
Hey, DEM. The only people I’ve ever known to refer to Coke as “KO” are those either working for Coke, working with Coke, or otherwise making money off Coke.
You’re not posting from the North Avenue mothership, are ya?
No, I don’t work for Coke. Just a stock market junkie.
BB, I was with you until you veered off course regarding the economics of soft drink pricing. Once a tax is placed on a consumer product, like soft drinks, companies cannot “simply reduce the price by that much and restore previous demand.” If this were true, then that would mean prices are just set arbitrarily, regardless of real costs incurred by manufacturers. The manufacturer cannot simply manipulate numbers to fit a desired point on the demand curve.
The prices of soft drinks are derived at by the bottlers of soft drinks, who operate on very thin margins — not the franchise companies whom you claim are “making money hand over fist.” The bottlers’ business is based on volume. That means their price points are extremely sensitive to things like taxes and they do not have a lot of flexibility to absorb higher costs. Any tax placed on soft drinks would definitely be felt by the consumer at the cash register.
BTW, when did it become fashionable to force individuals and companies to “pay for the side-effects of their own success”? Last I checked success was a good thing. Why would we want to discourage success? BB: with comments like that, it’s not surprising we have over 10% unemployment in this country.
Y’all might enjoy checking out the documentary “King Corn.” Kinda silly, kinda informative.
Something important to remember
Whenever a politician says “Revenue Source” they are referring to you and I.
The productive members of society are the only place taxes can come from.
Well, OK, the govt can print as much money as it likes as well (different conversation)
Why are we not hearing any serious conversation about spending reductions?
I mean the painful, serious reductions that are only deferred by higher taxation.
A thought: A 1% tax on soda, would that be calculated as part of a cost of living increase?
If so, would the recipient food stamps get more dollar value in food stamps to offset? If so, Wouldn’t it be coming out of my pocket anyway?
Hdog it’s coming mostly from Chinese pockets. We’re already in debt up to our eyeballs. By 2020 something like 70% of the budget will be Medicare, Medicaid, social security, and interest in the debt. Talk about unsustainable, with or without a soda tax.
I think we should also tax the heck out of ski equipment and jet skis. And mountain climbing equipment. Oh, and automobiles and bathtubs. Trauma care is the second most expensive healthcare condition after heart disease, people need to quit doing all these dangerous things that cause accidents.
And old people – they cost a lot to maintain, we should tax them extra. Oh, wait, I plan to become old. Never mind
As the long-winded manifestos above demonstrate, the link between ag subsidies, health and obesity is a strained and contorted argument.
If the goal is to reduce obesity, tax the obese. Time to quit aiming at the wrong target and address the real issue.
Who’s for the politically incorrect wildly insensitive, but no doubt highly effective, Fat Tax?
Count me in, Brad. I’m all for political incorrectness and insensitivity.
oooh a BMI tax?
I wanted to poke fun at that idea but it seems almost reasonable. If we’re modifying behavior through taxes why not just go directly for the desired result?
Sodalova, here’s an example: mountaintop removal for mining coal is a very successful business venture. Very, very cheap and profitable. However, one side effect of mining by mountaintop removal (among many) is this: toxic chemicals leech into the water supply, and somebody needs to clean it up (or else everybody who drinks the water gets sick). A side effect of the success of mountaintop removal is sickness. The point is this: Localities should get the mining companies to pay to clean this up, not you and me. One possible argument in favor of the soda tax is similar: the success of Soda manufacturers has a negative externality for society; namely, very expensive societal costs for treating people with obesity and diabetes. Again, I don’t really care about the soda tax, I am just trying to explain that the logic behind it does not fit neatly into a left/right partisan dynamic.
And Nancy, of course we charge elderly people and people with dangerous situations (like pre existing conditions) more for insurance. Call it a tax if you will; it’s all money leaving their pockets. I feel like partisan politics are clouding peoples rational economic judgments.
And sodalova, why do you assume price inelasticity throughout the whole system, except for the consumer?
I’m “cornfused”
Why would we tax the customers of a subsidized agricultural sector? Isn’t that counterproductive?
If something’s really a public health hazard then prove it and ban it, don’t horn in on the profits.
And Nancy, of course we charge elderly people and people with dangerous situations (like pre existing conditions) more for insurance. Call it a tax if you will; it’s all money leaving their pockets. I feel like partisan politics are clouding peoples rational economic judgments.
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It’s not a tax. It is not remotely close to a tax. It is a risk-adjusted price for a service. You can take it or leave it. A soda tax, on the other hand, applies to Lance Armstrong just as it would to Rush Limbaugh, though they would pay very different health insurance premiums, for obvious reasons.
Likewise, money leaves my pocket when I buy a shirt. Is that to be considered a “tax” to discourage me from staying shirtless? Is paying for air conditioning a “tax” on heat aversion? Of course not. Taxes are imposed by governments. Everything else is voluntary exchange. Taxes are paid to avoid imprisonment.
In any event, I grant you one point overall: uninsured people showing up at hospitals for treatment does impact the hospitals’ costs and pricing structure. This makes health care just like every other business on earth. People go to restaurants and skip out on the bill. They default on loans, all the time. They accept services and then don’t pay. It’s one thing to have to pay for these indirectly, and it is pretty much unavoidable in any circumstance. It’s another to propose as a solution that everyone has to not only pay the higher hospital price, but has to pay more for soda, too. And then bacon, presumably. Fried chicken. Hot dogs. And so on.
I think you dodged Sodaloav’s question. All of the acivities she mentioned unquestionably pose the same sort of “externalities” you bemoan in the soda context. So why not ban mountain climbing, or, short of a ban, impose a hefty tax?
DEM, when people skipping out on meals or mountainclimbing threaten to bankrupt our country, we will have to address those issues, too. And this tax would go directly to fund health care, at least that s what the article said, so it functions exactly like am insurance premium hike. But I think for lots of people their ideological preconceptions of the public vs. private sector distort the problem. I get the message loud and clear that you hate anything called govt an valorize the private sector; it just isn’t an accurate or helpful frame and won’t help anybody no matter how much anybody yells it.
Sorry, I know I have outstayed my welcome, and I’ll quit after this.
DEM wrote: In the end, I love the logic here, stemming mostly from the policitcal left. They say we all have a fundamental “human” right to health insurance at others’ expense. But we don’t have a human right to choose what we want to drink and eat. Some bargain.
DEM, I am glad to see that you are honest about not feeling any moral obligation to your fellow human being; I do think, though, that you should think about that. Historically, it never leads anywhere good.
More importantly, I never framed anything in terms of pity or ethics. I framed it in terms of economics, in terms of cold rational self-interest (you want to lower health care costs, here’s a way to do that that won’t cost you). But you have your own higher moral plane; you object for moral, not necessarily economic, reasons. These reasons, however, aren’t concerned with empathy. It’s something to ponder.
I get the message loud and clear that you hate anything called govt an valorize the private sector
DEM, I am glad to see that you are honest about not feeling any moral obligation to your fellow human being; I do think, though, that you should think about that. Historically, it never leads anywhere good.
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Oh please. That’s not what I wrote in either case, I think you know it, and if you want to leave the thread by utterly misrepresenting what I wrote, your choice. I’m happy to engage in rational discussion, which I thought we were having, but at this point I think you’ve decided to depart company on that score. I rest you”ll remain secure in your moral superority.
Can’t we all just have a Coke and a smile?