A new way of taxing sweetened drinks?

A recent study conducted in the USA, suggests that taxing sweetened drinks depending on the quantity of sugar they contain could ‘slash rising obesity rates and save in healthcare costs’, in turn boosting economic gains. Research has increasingly revealed that consuming more soft drinks, including both sugar-sweetened and artificially sweetened ones, may increase the risk for all-cause mortality. As we learn more and more about sugary drinks’ potentially harmful effects on health, some cities and countries across the world have implemented taxes on sugary drinks distributors; however, certain structures of such taxes tend to be ‘under-appreciated’ compared to others.

Seven cities in the USA currently tax sugar-sweetened beverages (SSBs) by the volume of the beverage; levies do not take into account the amount of sugar these drinks contain but rather just consider their overall volume. As the newly published study’s researchers have emphasised: ‘despite their different sugar content and resulting different harms, all sugar-sweetened beverages are taxed at the same rate per liter under a volumetric tax’. They suggest that this tax structure gives consumers no incentive to substitute from high-sugar to low-sugar drinks, even though the latter are regarded as less harmful. Hence, although a volumetric tax may reduce consumption of SSBs in general, it fails to provide consumers with the ‘maximum possible health benefits’.

To further support their conclusions, the team goes on to add that ‘a basic economic principle is that such corrective taxes should be proportional to the harm caused’, and that ‘the harm from sugary drinks comes from the sugar, and SSBs vary substantially in sugar per unit volume’. Hence justifying why taxing sugar-sweetened drinks based on sugar content would be more sensible than a tax based on drink volume.

Applicants for Economics can consider how policy strategies such as different types of taxing structures, can have significantly different outcomes, as well as have varying responses from the general population.