So How Much Does that Can of Soda Really Cost?

Filed in Proposed Legislation by on July 28, 2009 1 Comment

Externalities. The concept is, rather simply put, that “an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service.”

Which is to say, there’s a cost beyond the price–and that cost may be borne by someone other than the buyer or seller.

Smoking and drinking alcohol are often given as prime examples, as the affect of such can have social costs outside their price. Beyond the health costs, numerous studies have shown, for instance, a high incidence of arrest and incarceration to be alcohol related. It costs approximately $39,000 per year to imprison someone in New Jersey. The cost of incarceration, if the incarceration is caused by, or sufficiently related to, alcohol consumption, is an externality, or more precisely, an external cost. A cost which is simply not reflected in the price of a bottle of booze. With external costs taxes are often imposed upon products which produce such to both help defray what are commonly known as the social costs, and to inhibit use.

In New Jersey, the total tax on each pack of cigarettes amounts to $3.58 ($2.575 state/ $1.0066 federal). A portion of the federal tax goes to fund SCIP.

And the question is: What about soda and other such sugary soft drinks? A growing number conclude that soft drinks bear such a cost.

The Wall St. Journal reports that:

New research shows medical spending averages $1,400 more a year for an obese person than for someone who’s normal weight.

Overall obesity-related health spending reaches $147 billion, double what it was nearly a decade ago, says the study published Monday by the journal Health Affairs.

The higher expense reflects the costs of treating diabetes, heart disease and other ailments far more common for the overweight, concluded the study by government scientists and the nonprofit research group RTI International.

RTI health economist Eric Finkelstein offers a blunt message for lawmakers trying to revamp the health-care system: “Unless you address obesity, you’re never going to address rising health-care costs.”

Obesity-related conditions now account for 9.1% of all medical spending, up from 6.5% in 1998, the study concluded.

I am not suggesting that soda and sugary soft drinks bear sole responsibility for obesity or the doubling of obesity-related health spending over the last decade.

But as CBS News reports,

“Americans consume roughly 250 more calories every day than they did in the 1970s — and half those calories come from sugary drinks.”

“We’re not saying that calories from sugared beverages are different than any other calories,” said Dr. Kelly Brownell of Yale University. “There’s just too many of them.”

Brownell says a 10 cent tax per can could yield $140 billion in revenue over ten years.
But the beverage industry is pushing back.
“This is no time for Congress to be adding taxes on the simple pleasures we all enjoy like juice drinks and soda,” trumpeted one industry-backed TV ad.

(While researching this article, this ad from “Americans Against Food Taxes” popped up.)

According to the California Center for Public Health Advocacy:

Soft drink consumption has more than doubled since 1971. The average teenage boy drinks two 12 oz sodas per day or more than 700 cans per year. The average teenage girl drinks 1.4 twelve oz sodas per day or more than 500 cans per year. (CSPI, Liquid Candy, 2005 — based on 1999-2002 National Health and Nutrition Examination Survey)


Despite the first-ever per-capita declines in soft drink sales, companies still sold more than 14 billion gallons of calorie-laden soft drinks in 2008. That is equivalent to about 506 12-oz. servings per year, or 1.4 12-oz. servings per day, for every man, woman, and child.  Those drinks include regular (non-diet) carbonated sodas, energy drinks, sports drinks, fruit drinks, ready-to-drink teas, and vitamin waters.

CBS reports that the plan to tax 10 cents per can, amounting to approximately $140 billion over 10 years, to help pay for healthcare costs has failed to gain “traction” in Congress. The plan, understandably, has met staunch opposition from soft drink manufacturers and their lobby.

The argument against such taxes is that they are regressive and fall more sharply upon the poor than they do the affluent. I understand the argument–and at times I have understood it intimately. But I’m not at all sure it holds up here, as some simple math will show.

First off, because of the variety of sizes in which soft drinks come, a per ounce tax makes more sense to work with. 10 cents per 12 oz. can = .8333 cents per ounce. If the average consumption is 1.4 cans per day, or 16.8 oz, we’re talking about an average tax of roughly 14 cents per day. You simply cannot buy anything with 14 cents– but in the aggregate it can get you a little closer to funding universal healthcare. And perhaps, if the spectre of that 14 cents did cause some to consume slightly less soda, perhaps we as a country would not be the worse for it.

UPDATE: Professor Frank Pasquale on the latest in beverage tax utilitarian calculus.

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