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October 19, 2015

The Soda Tax

Berkeley, California decided to tax sugary-drinks in a effort to reduce consumption. Will it work?

When Berkeley, California became the first city in the US to levy an excise tax on sugary beverages, it was hoping the one percent per ounce tax would increase soda prices and discourage consumption.

The tax has increased the cost of sodas, but it is too soon to tell whether or not the rise in prices will affect people’s buying behavior.

Soda taxes are one way of funding public health efforts. Tax revenues have already been allocated to support the Gardening and Cooking Program in the Berkeley Unified School District.

The tax went into effect in November of 2014. It's an excise tax and is not levied directly on consumers like a sales tax, but is added before the point of purchase. Potentially, this leads to higher retail prices which consumers are aware of before they decide whether or not to purchase an item.

While the goal of the tax was to raise the cost of these sugary drinks, “No one knew how retailers would deal with the added costs of the tax,” lead author Jennifer Falbe said in a statement. “Increasing the price of sugary drinks is a critical first step in discouraging consumption, so it's incredibly encouraging that we're seeing pass-through of the tax to higher retail prices so early after implementation. We expect higher price increases in the future as small business owners learn more about the tax.”

Before the soda tax was passed, the researchers collected data on most beverage prices at stores in Berkeley. They included the cities of Oakland and San Francisco as well to account for factors that could affect prices regionally.

Three months after the tax took effect, researchers found that soda prices in Berkeley had increased by 7/10 of a cent per ounce more than in other cities. Since the excise tax was one cent per ounce, researchers concluded that roughly 70 percent of the tax was tacked on to the retail price.

Other sugary drinks, like lemonade and cranberry cocktail, showed about a half cent per ounce increase in price. Overall, prices for all sugar-sweetened drinks increased by about a half a penny per ounce, and the cost of non-sweetened beverages didn’t change any more in Berkeley than in comparison cities.

“Sin taxes” have seen limited success in other cities, and other cities are still considering them; but sales of full-calorie soft drinks have declined steadily over the past 10 years. The Centers for Disease Control and Prevention reported a 6.8 percent decrease in the number of high school students who reported drinking soda the previous week between 2007 and 2013.

Soda taxes are one way of funding public health efforts, according to Kristine Madsen, senior study author and an associate professor at UC Berkeley's School of Public Health.

Dr. Madsen noted that along with the tax on sugary beverages, Berkeley established a panel of experts to make recommendations on ways to fund efforts to reduce obesity and sugary beverage consumption. Tax revenues have already been allocated to support the Gardening and Cooking Program in the Berkeley Unified School District.

In 2012 then-New York City mayor Michael Bloomberg proposed an amendment to the city's health code prohibiting the sale of super-size sodas of 16 ounces or more.

This study did not address whether higher soda prices had affected sales of the sugary beverages, but the team is in the process of studying that data. Stay tuned.

The study is published in the American Journal of Public Health.

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