Taxing sugary drinks

As cities and states seek to address rising rates of heart disease, type 2 diabetes and obesity, many are looking to sugary drink taxes. Communities around the country are considering these taxes to raise revenues to address health, education and other important community needs; reduce consumption of an unhealthy product; and call attention to the health risks of sugary drinks. Interest in sugary drink taxes is not limited to the US – more than 35 nations across the globe have also adopted taxes.

A tax on sugary drinks can help:

  • Raises revenue for important programs like healthier food in schools, increasing access to healthy food for low income people, initiatives to prevent diabetes and other chronic diseases, education campaigns about sugary drinks and healthy eating, and universal pre-k.
  • Reduces health and economic inequities by targeted investment of tax revenues in low-income communities which have disproportionately high levels of industry marketing, consumption, and the diseases caused by sugary drinks.
  • Reduces the rates of costly and preventable chronic diseases.
  • Increases awareness about the harmful effects of sugary drinks.
  • Discourages consumption of sugary drinks by raising their prices.
  • Shifts beverage sales to healthier products.
  • Encourages industry to produce and promote healthier beverage options.

Download our fact sheet, "Policy Snapshot: Sugary Drink Tax".

Learning from experience: Lessons from successful tax initiatives

Seven cities and the Navajo Nation have implemented sugary drink taxes in the US. Dozens of countries across the globe also tax sugary drinks.

Early evidence from Berkeley, CA and Mexico shows that taxes are successfully reducing consumption and sales of sugary drinks while increasing water consumption. They are raising substantial revenues that are being used to address important community needs. See our summary of the evaluations of taxes: Are Sugary Drink Taxes Working?

Seattle, WA: Seattle City Council approved a 1.75-cent per ounce sugary drink tax on June 5, 2017 in a 7-1 vote. Revenue is earmarked for healthy food access and early childhood programs. Download our fact sheet, Policy Profile: Seattle, WA Sugary Drink Tax

San Francisco, CA: In 2016, voters passed a 1-cent tax per ounce with 62 percent of the vote. Download our San Francisco profile for more details. 

Oakland, CA:  Oakland adopted a 1-cent tax per ounce on the same day as its Bay Area neighbors, San Francisco and Albany. Download our Oakland profile for more details.

Boulder, CO: At the time of passage, Boulder’s tax became the highest of its kind in the nation ($0.02/oz), and the first to specifically name health equity in its revenue earmark. Download our fact sheet, 'Policy Profile: Boulder, CO Sugary Drink Tax' for more details. 

Albany, CA: Albany joined the Bay Area cities of Berkeley, Oakland, and San Francisco in passing a 1-cent per ounce tax. Download our Albany profile for more details.

Philadelphia, PA: In 2017, $79 million in revenue from Philadelphia’s 1.5-cent per ounce tax funded pre-K seats for 2,700 children, 12 community schools, and launched the rebuild of Philadelphia’s parks, rec centers, playgrounds, and libraries. Download our fact sheet, ‘Policy Profile: Philadelphia, PA Sweetened Drink Tax’ for more details. 

Berkeley, CA:
 In 2014, Berkeley became the first city to pass a tax on sugary drinks (1 cent per ounce). The tax raised $3 million in its first two years and reduced sales of sugary drinks by 10%. A community advisory board has awarded grants to local nonprofits like the YMCA and Healthy Black Families for health and nutrition education, and to the Berkeley Unified School District for its cooking, gardening and nutrition education program.  Download our fact sheet, ‘Policy Profile: Berkeley, CA Sugary Drink Tax’ for more details.

Mexico: A 10% tax raised $2.6 billion (in USD) in national revenue over the first two years, while reducing sugary drink consumption by 10% during the second year.i
Download our fact sheet, ‘Policy Profile: Mexico Sugary Drink Tax’ for more details.

How do the taxes work?
The tax is an excise tax on distributors of sugary drinks. Current taxes in the US are based on volume (one to two cents per ounce). A tax could also be based on the amount of sugar in a drink. Some experts recommend the latter because it directly reflects the amount of harmful substance in the drink and provides a strong incentive for manufacturers to lower the sugar content of their products.

See our guide, “Best Practices in Designing Local Taxes on Sugary Drinks”.

The tax typically would apply to beverages with added sugar, including:

  • Sodas (such as Coke, Pepsi, Mountain Dew)
  • Energy and sports drinks (such as Monster, Red Bull, Gatorade, Powerade)
  • Fruit-flavored drinks (such as Sunny D, Capri Sun)
  • Sweetened teas and coffee drinks (such as Arizona Iced Tea and bottled Starbucks Frappuccino or barista-made coffee drinks with sugary syrup)

How much tax? Experts recommend increasing the price by at least 20%, which is around 1.5 -2 cents per ounce. Communities decide on a tax rate based on revenue and health needs while considering what is politically feasible. (For more on this topic, see our tax design guide). 

How much revenue will a tax raise? In order to project the amount of revenue available to support local health, education or other investments, the first step is to decide the rate per ounce. A tax that is too high might be very effective at reducing purchases of sugary drinks, but could end up raising less revenue than a lower tax that does not decrease consumption as much. Acceptability of the rate to stakeholders and the public is another consideration. The extent to which distributors and retailers pass along the tax to customers also affects revenues. The higher the pass-through rate, the greater the price increase, the greater the decline in consumption and therefore the lower the potential tax revenues. The extent of pass-through is a topic of current research. Data from Berkeley and Mexico suggest that 67-100% of the tax is shifted to the consumer. To explore how much a tax might raise in your community, check out the Revenue Calculator for Sugary Drink Taxes, prepared by the Rudd Center for Food Policy and Obesity at the University of Connecticut, in collaboration with Healthy Food America.

How should tax revenue be used? Tax legislation typically includes legislative intent describing how tax revenues will be used. Cities with taxes have dedicated the revenues to a variety of activities that address locally defined priorities and needs. They include supporting healthy eating (increasing access to healthy food, nutrition education, and more), implementing prevention programs that address chronic diseases associated with sugary drinks, expanding access to and quality of early childhood programs, supporting equity in K-12 education, maintaining parks and recreation facilities, and raising awareness of the health effects of sugary drinks through education programs or public communication campaigns. For more details, see the tax policy profiles for each city on our website. Most cities have established Community Advisory Boards to offer recommendations on how to allocate revenues and to assure that use of revenues is consistent with the goals of the sugary drink tax legislation and reflects community priorities.  

Should “diet” drinks be included? There is strong scientific evidence associating sugary drinks with higher rates of chronic diseases such as type 2 diabetes, heart disease, high blood pressure, liver disease and dental disease. The evidence of harm from diet drinks is less certain. While some studies show benefits such as short-term weight loss, others raise the possibility of associations with diabetes, high blood pressure and stroke. Therefore, we recommend not including diet drinks in beverage taxes. For more on taxing diet drinks, see our policy brief. For a summary of what is known about health effects of artificially sweetened beverages, see this research brief.

What about 100% fruit juice? Some nutrition experts have expressed concern that fruit juice contains sugar in amounts equal to or greater than that found in drinks with added sugar, like regular soda. However, the science on the health impact of juice has yet to establish a clear red flag, with several reviews showing no association with weight gain or obesity, so jurisdictions tend to exempt it. Read more about the science on 100% juice. 

What places can adopt a tax?All states and many cities and counties have the legal authority to impose a tax. Contact Jim Krieger at Healthy Food America for more information, jkrieger@hfamerica.org.

HELPFUL RESOURCES


iColchero MA, Popkin BM, Rivera JA, Ng SW. Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: observational study. BMJ. 2016;352:h6704.

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