Will a Soda Tax Work?
A few weeks ago, Tom Laskawy took issue with my contention that we don't really know how to convince people to eat better. "Junk food—and that includes any processed food that crosses the line from nutritious to purely caloric—has to get more expensive," he wrote. "Period."
The theory behind this is simple, and, on an abstract level, unassailable. If calories cost more, people will consume fewer of them. If the government slaps a $10 tax on every bag of chips, Lays would probably go out of business. But that isn't likely to happen. The question, rather, is whether relatively modest taxes on calories are effective. Are people extremely price sensitive when it comes to food? Or not?
The evidence appears to point toward "not." A recent study conducted by researchers at the RAND Corp. used evidence from the Health and Retirement Study -- which is generally considered to provide very high-quality data -- to estimate the impact of a 10 percent reduction in the cost of all calories (they use a reduction because, well, food prices have been going down, so that's where we can find real-world data on how people respond to price changes in food). The data isn't very encouraging.
In the short-term, the impact is very small. Over two years, body mass index increases by 0.6 percent. Over time, the impact compounds, so after 30 years, it's a 4.2 percent increase in BMI. To put that in perspective, clinical guidelines say that you need a 10 percent reduction for meaningful health benefits to overweight individuals. And this isn't out of line with other estimates: The paper also has a section surveying similar experiments, and it turns out that this paper is actually more optimistic than many. Which makes me pretty pessimistic. All we're talking about, after all, is a small soda tax. They're talking about a 10 percent change on all calories (and it's total calorie consumption, not just junk food consumption, that's really the problem here). And it still isn't near sufficient.
In a way, that's intuitive. Americans spend very little of their paycheck on food. Less than 10 percent of disposable income, in fact. Compare that to the '30s, when it was more than 25 percent. So it's not terribly surprising that we're not very price sensitive. It's not one of the things that we feel the need to be terribly price sensitive about. But the policy implication is that whether or not soda taxes are a good idea for raising revenue, they're not likely to do a tremendous amount to change the national waistline.