Soda Tax

Change in Price since '78, Relative to Inflation

David Leonhardt comes out strong for a penny-per-ounce ($1.44 on a 12-pack) soda tax and concludes:

Someday, we will probably look back on our gallon-a-week soda habit the way we now look back on allowing children to ride without seat belts or listening to doctors who endorsed Camel cigarettes. We will wonder what we were thinking.

He’s right on. As he points out, the average American now drinks a gallon of sugary beverages a week. This, unsurprisingly, is associated with lots of adverse health effects: obesity, heart disease, and diabetes, to name a few.

So, this is exactly the kind of tax we should be implementing. Like cigarette taxes, a soda tax is Pigovian (a Greg Mankiw favorite, although he thinks soda taxes aren’t Pigovian) – it helps to limit a negative externality. In this case, it would reduce sugar intake and, therefore, limits the costs of treating chronic diseases associated with obesity. That’s a societal benefit. In this way, the government can generate more tax revenue while helping to remedy a negative outcome in the market.

Long story short, a soda tax is an obviously good idea. And considering the above graph from Leonhardt’s article, it’s about time we got around to it.

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