Woolf: How fair is a soda tax?

Is two cents a lot of money? Most of us wouldn't bother to stop and pick up two pennies we saw lying on the sidewalk. Does that mean that the Vermont legislature's proposed two cent per ounce tax on sugar sweetened beverages is not a big deal?

Although two cents doesn't sound like much, any tax has to be considered in context. For example, one million dollars is a big deal in the Vermont state budget; in the federal budget one million dollars is less than a rounding error.

What's the best context in which to consider the proposed sugar sweetened beverage tax? The way it's been framed by its supporters and in some media is two cents per ounce. What that means for the total price of a bottle of soda or a six pack is another. By what percent the tax would increase the price of soda is yet another. I've yet to see the tax discussed in any context other than the simplest (and smallest), which is two cents per ounce.

A two cents per ounce tax translates into about a 20 percent tax on a single 20 ounce bottle of soda purchased at a convenience store or from a vending machine. But buying individual sodas is a lot more expensive per can or bottle than purchasing them in six, 12, or 24 packs, as most people do at supermarkets. We buy sodas in large quantities to get them at a lower price per can. But that means a tax levied per ounce will amount to a higher percentage of the purchase price as the numbers in the table show.

I took a trip to our local Price Chopper supermarket last weekend and found the prices shown in the table. A two cent per ounce tax can easily translate into a tax that comes close to, or even exceeds, the beverage's current price. A 12 pack of 12 ounce cans of Coca-Cola was on sale at three 12 packs for $10. But those 432 ounces of soda means a tax of $8.64, so we'd be paying $18.64 for the three 12 packs, a tax rate of 86 percent. If you try to save money by buying the store brand of soda, the new tax would more than double the price of a 2 liter bottle of Price Chopper soda, raising it from 88 cents to $2.23.

There are two reasons the Vermont legislature is considering this tax. One is to reduce obesity. Although Vermont has one of the lowest obesity rates in the nation, it has been rising over the past few decades. About one-quarter of Vermont adults are obese. Although that's a less than the 35 percent of American adults who are obese, it has increased from one in five Vermont adults in 2004 and one in 10 in 1990.

The second reason is to raise revenues. It goes without saying that the legislature is desperately looking for ways to try to balance next year's budget, and $30 million in new tax revenues looks awfully sweet.

The tax's supporters argue, and hope, that the tax will discourage people from drinking sugary beverages, just as higher cigarette taxes have helped reduce smoking. Vermont's $2.75 per pack cigarette tax is among the highest in the U.S. and translates into about a 65 percent tax rate.

For most types of soda purchases the sugar sweetened beverage tax would be more than the cigarette tax on a percentage basis. Is sugar, or more specifically sugar sweetened beverages, a bigger health hazard than tobacco?

Even if the legislature wants to reduce obesity, a narrow tax on sugary drinks may not be the best way to accomplish that goal. After all, if consuming too much sugar is a major cause of obesity, why not tax all sugary products: cookies, candy, brownies, cake mix, ice cream, chocolate milk, sugar itself, and any product with a lot of calories from sugar? I'm not sure Lake Champlain Chocolates, Ben and Jerry's, or the Vermont Maple Sugar Makers Association would be too happy with that type of tax.

And, of course, people gain weight not just from consuming too many calories, but from too little exercise. Why not tax activities that contribute to reduced physical activity? (I could suggest, somewhat facetiously, a tax on parents who drive their kids to school every day rather than letting them walk or ride their bicycles.)

There are other problems with a narrow tax on sugar sweetened beverages. How much less soda and sugary drinks would people drink if the tax passes? And how much would that reduce people's caloric intake? Would they just eat more high-calorie food while they were drinking non-sugared beverages? And would a high tax on soda encourage even more Vermonters, especially people living in the Connecticut River Valley, to shop in New Hampshire, further depressing that region's economy?

There is one more economic reason we should think carefully about enacting a sugar sweetened beverage tax. That tax would be a regressive one, disproportionately affecting lower income Vermonters. Many legislators are quick to challenge any change in Vermont's tax structure that isn't progressive. Why shouldn't this tax be subject to the same scrutiny and concern?

Finally, there is a more fundamental reason to be concerned about the sugar sweetened beverages tax. And it goes to the heart of our relationship with our government. How much should the government decide what we put into our mouths? Do we want the government to those decisions for us? Or should our personal choices about what we choose to eat or drink be just that — personal choices.

Art Woolf is Associate Professor of Economics at the University of Vermont.