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How Would Sugary Beverage Taxes Impact State Economies?

  • Feb 24, 2014 | Gail Cole

 Would soda taxes create or destroy jobs?

The idea of imposing a high rate of sales tax on sugary beverages is not new. Hawaii considered a soda tax in early 2013 but tabled the issue. Two California cities tried to impose a soda tax in 2012, but the measures were defeated. New York City Mayor Bloomberg went further by issuing a ban on sodas 16 ounces or greater (the ban was prevented at the final hour).

Currently, San Francisco and Berkeley are considering soda taxes. As measures are being considered for the November ballot, citizens in both cities are preparing for a big fight against big soda.

Motivation for a higher tax rate stems from both health and fiscal concerns. It’s no secret that Americans suffer from alarmingly high rates of obesity, diabetes, and other diet-related health problems, and if soda is not the sole cause, it is a contributing factor. There are real costs associated with these diseases, and tax revenue generated from sales of sugary drinks could support related healthcare and education programs.

Indeed, there’s a long tradition of imposing high taxes on products with high costs to society, such as alcohol and cigarettes and, more recently, marijuana. Said Adam Smith in The Wealth of Nations (1776), “Sugar, rum and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.” Mr. Smith would undoubtedly approve of taxing soda.

Soda tax = fewer jobs

Yet the soda industry finds soda taxes to be persecutory—or at least discriminatory. As soon as San Francisco politicians started speaking of a soda tax, “Big Soda” began gearing up for a fight.

Chris Gindlesperger of the American Beverage Association thinks it’s time to put soda taxes behind us. “It’s time for serious health professionals and lawmakers who want to be engaged in a comprehensive solution to obesity to move on from soda taxes and bans.” He called soda taxes “discriminatory policies against common grocery items”—in other words, unfair (Time).

Furthermore, says the American Beverage Association, taxing sugary drinks will cause “burden businesses” and “put good jobs at risk.” According to a February 13 news release, “No matter how you look at it, soda taxes mean fewer jobs. … Soda taxes have unintended consequences on middle-class jobs and small businesses.”

Soda tax = more jobs

Maybe. However, a study published last week in the American Journal of Public Health and funded by the Robert Wood Johnson Foundation suggests that taxing sweet beverages could actually have the opposite effect. “A 20 percent tax on sugar-sweetened beverages would result in small job gains in both the public and private sectors.”

Researchers created a model to study what kind of an impact a soda tax would have on jobs in California and Illinois. “Their findings predict an increase of 4,406 jobs in Illinois and 6,654 jobs in California following the application of such a tax.”

Gains in employment would stem from “consumers reallocating their spending to non-sugar-sweetened beverages and other goods and services.” Truck drivers who once delivered soda would deliver other drinks. Revenue generated by the tax would create jobs in the private and public sector.

According to Dr. Lisa Powell of the University of Illinois, Chicago, lead author of the study, “The [beverage] industry’s estimates do not fully account for money that will be spent elsewhere in the economy or the newly generated tax revenue.” Her study used a comprehensive model that incorporated the following information:

  • “Changes in sugar-sweetened beverage demand;
  • Substitution to non-sugared sweetened beverages;
  • Adjustments in consumer income and spending levels created by the tax; and
  • Government spending of new tax revenue.”

Previous studies indicate that raising the price of sugar-sweetened drinks by one or two cents per ounce (or 20%) could reduce consumption by 24%.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.