The October 2011 issue of Choices, published by the Agricultural and Applied Economics Association, has a set of six short readable articles on the subject: "Should Soft Drinks Be Taxed More Heavily?"
The case for taxing soft drinks--or as some of this literature puts it, SSBs (sugar-sweetened beverages)-- is based on a hope that taxes on sugary beverages would reduce obesity and improve public health. Jason Fletcher cites some striking evidence (citations omitted here and throughout): "[S]oft drink consumption has increased by almost 500% in the past 50 years, and recent data suggest it represents 7% of overall energy intake in adults and often larger proportions in children ... a 16% share of calories in youth ages 12-19 and 11% in children ages 2-11." Carlisle Ford Runge, Justin Johnson, and Carlisle Piehl Runge write: "U.S. sugar-sweetened sodas account for one-half of the increase in caloric consumption over the past 25 years, and are the largest source of added sugars in the average diet ..."
Reducing calories by a small amount, if sustained continually, would bring down weight. Fletcher again: "We know that soda consumption is an important share of total consumption, and ample evidence suggests that maintained reductions in consumption of approximately 100 calories per day—less than a can of soda—could halt weight gain for 90% of the population ..."
Jason P. Block and Walter C. Willett cite a number of studies which estimate a price elasticity of demand for soda, often finding estimates in the range of .7 or .8--that is, a 10% rise in the price of the soda would lead to a decline of 7 or 8% in the quantity consumed.
The main counterargument is that when people cut back on soda or soft drinks, they don't switch to drinking water. Instead, most of them will shift to other equally caloric beverages, including cheaper brands of soft drinks, sugary fruit waters, and juices or milk. As a result, calorie intake won't drop. Fletcher one more time: "[T]here is now ample research that examines the association between the level of state soft drink taxes—or soft drink prices—and obesity rates and found no effect. ... [W]hile individuals in states with higher soda taxes have lower soda consumption, these individuals completely offset the reductions in calories from soda by consuming other high-calorie beverages, such as milk and juice. This evidence is consistent with the view that individuals demand calories each day, and if the price increases on one mechanism of attaining calories (soda) then individuals shift their consumption relatively easily to satisfy their demand."
There is also some evidence that there may be mildly positive health effects from a soda tax, but at best, the empirical evidence that an SSB tax would improve health is questionable and uncertain. Indeed, it may be that those who most need to lose some weight are also the group who would be most likely to substitute toward other caloric drinks.
Even if a sugar-sweetened beverage tax didn't reduce obesity, it might have some side benefits. For example,
Runge, Johnson, and Runge have an essay titled: "Better Milk than Cola." Their point is that drinking milk or orange juice provides some other nutrients, even if the calorie count is the same, rather than just empty sugar. There may be dental health benefits, too.
Is there a way to make sugar-sweetened beverage taxes into a more useful policy tool? There are a number of possibilities. First, an obvious possibility would be to have higher taxes on sugar-sweetened beverages, and to focus them on those beverages in particular, not on all soft drinks. Block and Willett point out that "the inflation-adjusted price of soda has declined by as much as 48% over 20 years."
At present, lots of states apply their sales taxes to soft drinks. But usually such taxes are not specific to sugar-sweetened beverages vs. diet or low-calorie drinks. In addition, such taxes are not usually very large, and so are unlikely to have much effect on behavior. Here is Frank J. Chaloupka, Lisa M. Powell, and Jamie F. Chriqui (citations omitted): "[V]ery few governments, including seven U.S. states, levy small taxes that are unique to soft drinks and other non-alcoholic beverages, and almost none of these, including the few state taxes, apply only to sugar-sweetened beverages. However, most governments do impose their value added or sales taxes on a variety of beverages, with about two-thirds of U.S. states levying sales taxes on carbonated soft drinks. Again, none of these differentiate sugar-sweetened from unsweetened or artificially sweetened beverages. Given the low sales tax rates in the United States, these taxes add very little to retail prices, on average accounting for less than 5% of the tax inclusive price." A true SSB tax would presumably focus on sugar-content or calorie count.
A number of the essays point out that there may be interactions with public information campaigns or advertising and a soda tax. For example, publicity about the soda tax might help to make the tax salient in the minds of the consumers, so that they react to it more strongly. Publicity about healthier alternatives might also help in making healthier substitutions. Joshua Berning points out that soft drink companies spend tens of milllions each year on television advertising for top brands, which certainly suggests that advertising can influence choices. It also suggests that a tax on sugar-sweetened beverages could be undercut or offset by changes in advertising strategy.
One concern sometimes raised about a tax on sugar-sweetened beverages is that if people switch to diet soda, that might also have some negative health effects. However, studies of health effects of drinking diet soda need to account for two-way causality: that is, it may be that drinking diet soda causes poor health, or it may be that those who are already in poor health are more likely to drink diet soda. Block and Willett write: "When all of these studies are considered together, it appears that many, if not all, of the apparent adverse effects reported for artificially sweetened beverages may be due to reverse causation—individuals may switch to artificial sweeteners because of weight gain or blood glucose abnormalities. The studies that properly account for possible reverse causation, by using longitudinal data on subjects over time and controlling for dieting behaviors and weight, find no clear association between artificially-sweetened beverage consumption and metabolic risk."
The final essay, by Robbin Johnson, offers a counterargument to the idea of a soft drink tax. He points out that there are lots of contributors to obesity: "spending too much time sitting down watching screens; a physical environment that promotes vehicle use rather than walking; competition for the dining-out dollar that leads to larger portion size; lack of access to healthy foods or individualized portions; advertising messages promoting processed, calorie-dense foods; genetic factors; hormonal or other metabolic causes; use of medicines that contribute to weight gain; emotional needs that encourage overeating; quitting smoking; sleeping too little or too much; and aging." Most advice about weight loss and good health is about taking responsibility for moving toward an overall healthy lifestyle, not about identifying certain foods as "bad foods" and taxing them.
A "bad foods" tax, after all, would probably also focus on potato chips, french fries, snacks, candies, desserts, and processed meat, along with sugar-sweetened drinks, A "bad lifestyles" tax would tax or subsidize all sorts of actions. Leave aside the practical difficulties of designing and administering a bevy of such taxes. The conceptual insight is that these taxes would affect many foods and actions that are not bad for your health if done in moderation. There is something of a mismatch between a bevy of taxes to micromanage food and lifestyle choices for the average person, and the goal of discouraging the minority who are obese from overconsuming.