Soda Tax: Is New York Soaking the Poor?

As the health care debate hobbles onward, some cash-strapped state and local governments are dusting off an old idea: taxing unhealthy foods and beverages to generate fresh revenues for health care programs. The latest target is sugary soft drinks, which have been linked to a variety of health ills, including obesity, bone breakage and reproductive difficulties.

Targeted taxing is hardly a new idea; for years, every state has levied taxes on cigarettes and many municipalities have tacked on charges of their own. In New York City, for example, taxes have driven the cost of a pack of cigarettes over $9. Paired with educational programs and laws regulating where one may smoke, taxes have helped reduce smoking by almost 6% since 2002.

Targeting Sugar Water

Given its history of using taxes to support health initiatives, it's hardly surprising that New York is at the forefront of the current move to tax soda. A year ago, New York governor David Paterson proposed an 18% tax on sodas and sugary drinks with less than 70% juice, only to be undone by aggressive lobbying by the bottling industry. This January, the governor unveiled a modified form of the tax: the new version only applies to sodas, letting sweetened juice cocktails and other sugary drinks off the hook. Also, the new proposed tax is less apparent to consumers: while it hits sodas with a penny-per-ounce charge, it is an excise tax: instead of being tacked on at checkout, it will be factored into the retail price of soda. Even so, according to supporters, the tax would reduce consumption by 10%.

Philadelphia mayor Michael Nutter has proposed a similar tax, with one key difference: rather than focusing on soda alone, he is going after all beverages with added sugar, including coffee drinks, energy drinks, iced tea and even chocolate milk. Nutter's plan, which would put a two-cents-per-ounce levy on sweetened beverages, is estimated to generate $77 million per year, $20 million of which would go toward nutrition and exercise programs for Philadelphia. The rest would go into the city's general fund.

While Nutter's proposal has a clear link to health initiatives, New York's soda tax is less transparent. Both Paterson and New York state health commissioner Richard Daines have indicated that the estimated $1 billion revenue generated by the plan would fund health-care initiatives, while New York City Mayor Michael Bloomberg suggested that the funds would be used to fund community health centers and keep teachers in classrooms. Political maneuvering aside, the link between the soda tax and health care spending seems tenuous: the same budget that proposed the soda tax (and a $1-per-pack cigarette tax increase) also included $1 billion in cuts to both health care and education.

Who Pays?

While the dispensation of soda revenues is worrisome, another concern lies in the question of who is ultimately targeted by the taxes. Sodas are especially popular in poorer neighborhoods: according to a study recently published in the Journal of Urban Health, low income consumers in New York City are more than twice as likely to drink soda and minorities are two to three times as likely to consume them. In this context, the soda tax is regressive.

This distribution is even more striking when one considers the health question. A central plank in the argument for soda tax is that sodas are extremely unhealthy, and thus deserving of an especially high excise tax. In the current tax structure, the dangerous beverage hierarchy breaks down like this: liquor is the most dangerous (excise tax of $6.44/gallon, sales tax: not more than $2.54 per gallon), followed by soda, which has a proposed excise tax of $1.28 per gallon and a sales tax of 4%. Wine comes next (excise tax of 30 cents per gallon, sales tax of 8.2%), followed by beer (excise tax of 14 cents per gallon, sales tax of 4%). Fruit juice, iced tea and other sweet beverages don't even make the list, with a simple sales tax of 4%.

On one level, the decision to let fruit juices and sweet beverages off the list makes sense; after all, they are neither as popular nor as popularly demonized as soda. But, as Nutter's proposal highlights, they are also potential health risks. In fact, they often pack even more of a sweet punch than soda: while 12-ounce can of Coca Cola has 140 calories and 39 grams of sugar, a comparable amount of Kiwi Strawberry Snapple -- which wouldn't be taxed under Paterson's proposal -- has 165 calories and 39 grams of sugar. But the big kicker is good old Welch's grape juice: twelve ounces of the purple elixir contain 262 calories and a jaw-dropping 59 grams of sugar -- almost twice as many calories and over 40% more sugar than Coke. Usually, the sugar boost in fruit is offset by its fiber, but most juice companies strain out the fiber, leaving kids with little more than belly-busting calories.

Keep an Eye on the Money

There is little question that New York's soda tax would have positive effects on both the overall health and the pocketbook of the Empire State. But as policymakers try to fill coffers by getting rid of empty calories, taxpayers need to keep a sharp eye on the bottom line: if the true purpose of the tax is to improve the health of New York's citizens, then it must be accompanied by a broad education and regulation effort. Absent a comprehensive attack on all high-sugar beverages and a widespread, state-funded nutritional education program, the tax on soda may simply leave the poor with the same consumption habits and the same health problems -- but even less money in their pockets.