San Francisco Soda Tax

Oct 18, 2014

This November San Fracisco residents will vote on Proposition E, a measure that would impose a 24¢ tax on cans of Coke. Proceeds from this tax, estimated to be around $40 million, are required to be distributed among various related health and education initiatives.

I am strongly in favour of this proposition.

Two major questions should be asked of this proposition:

  1. Is this an acceptable area for government intervention?
  2. Is it likely that this would be a cost-effective intervention?

On both counts, I answer in the affirmative.

Government Intervention Is Warranted

As early as 2001, the US Surgeon General has been warning of a national “Obesity Epedemic”. By now the phrase has become cliché. In San Francisco 42% of teenagers and adults are overweight or obese1. It is well established that sodas are a serious contributor to this problem. In the face of such a critical issue combined with a large information assymetry—consumers aren’t fully aware of health risks and are inundated with positive advertising from beverage companies—the government has an obligation to help its citizens prosper.

Apart from any health concerns however, obesity costs real money. The Budget and Legislative Analyst’s Office estimates that obesity costs to San Francisco residents attributable to SSBs at $48 million. This includes direct health expenditure, such as prescription drugs and emergency room visits, as well as indirect costs from days off work or otherwise lowered productivity. Much of this would be covered by insurance though2, so the Office went further and estimated the cost to the City of San Franciso of obesity at anywhere between $6 and $28 million depending on scenario3.

Taxes Are Effective At Reducing Consumption

There is ample evidence that price increases should lower consumption. The most direct results come from Mexico, where a comparable soda tax was instituted last year. All the major producers reported reduced sales, while Mexicans report lowering their consumption. A bonus benefit was increased awareness, with 98% believing that drinking soda “raises their risk for developing diabetes and obesity”.

If you accept the analogy to cigarettes, it is widely established that higher prices contribute to reduced consumption:

The review of the literature clearly shows that the answer to the question posed in the title of this chapter [“How Effective are Taxes in Reducing Tobacco Consumption”] is ‘very effective’. Increasing cigarette and other tobacco taxes will lead to significant reductions in the use of these products, resulting from reductions in the frequency of use by continuing users, as well as reductions in the prevalence of use. Given this evidence, higher tobacco taxes are likely to be the single most effective policy option for reducing the public health toll from tobacco. When combined with other tobacco control activities, which could be funded by earmarked tobacco taxes, even larger reductions in youth and adult tobacco use could be achieved.

This reduction has be shown to be present even when controlling for other variables such as anti-smoking publicity.

The increased price combines with programs funded by revenue from the proposed tax to create a two-pronged attack on obesity. Even if the tax itself does not impact consumption, it is likely that education initiatives made possible by it will. While this is unavoidably a regressive tax, the resulting programs can be directed progressively towards segments of the community most at risk.

Overall, this proposition is an important step towards addressing a widespread and costly health issue. Vote Yes on proposition E.

  1. Statistics available in UCLA’s fantastic database, though a free login is required.

  2. I still consider insurance a non-productive social cost, but that’s an argument for another day.

  3. Do you include a portion of health insurance contributions to City employees? Costs that could be covered by State funding?