Tuesday, August 13, 2019

Are SSB taxes good or bad for the poor?

In an economic sense, the optimal soda tax is surprisingly high, even if one values economic redistribution and opposes "regressivity" in the tax system, according to a recent NBER working paper from Hunt Allcott, Benjamin Lockwood, and Dmitry Taubinsky.

The three economists recognize that sugar sweetened beverage (SSB) consumption may have a larger budget share for poor consumers than for rich consumers, but, somewhat offsetting this pattern, they consider the possibility that low-income consumers are more responsive to price -- that they have a larger "own-price elasticity" -- enabling them to avoid a larger share of the tax burden, compared to middle- and high-income people. In the end, the authors find that an optimal national tax might be about one or two cents per ounce, equal to or slightly higher than current municipal taxes in Berkeley, Philadelphia, and elsewhere.

This paper relates to an interesting debate over several years in the progressive media, which arises because of the possible tension between public interest goals, including public health nutrition goals on the one hand and anti-poverty goals on the other. For example, Bernie Sanders in 2016 opposed soda taxes, but Anna Lappé wrote in Mother Jones encouraging him to reconsider and support these taxes. Similarly, in 2017, Max Sawicky wrote in In These Times opposing such taxes, while Tom Philpott favored support.

In research in the American Journal of Public Health in January, my colleagues and I estimated the costs and effects of a national penny-per-ounce SSB tax separately for multiple stakeholders: including both richer and poorer groups of consumers, employers (who save money in health care costs with the tax), SSB producers (who lose out especially if they must absorb part of the tax and cannot pass the full value onto consumers), and the government (which wins twice, once from the tax revenue and once from the healthcare cost savings in public insurance programs such as Medicaid).

Clearly, it is not enough to compute effects for an "average person" when studying SSB taxes. Yet, even when we consider the interests of multiple income groups in society, the merits of such taxes may be surprisingly strong.

In These Times.


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