1
Public Health & Revenue
Implications of a Sugar Sweetened
Beverage Tax in Vermont
Frank J. Chaloupka
Distinguished Professor of Economics and Public Health
University of Illinois at Chicago, Chicago IL
Vermont House Ways and Means Committee March 11, 2015
2
Overview
• Economic rationales for SSB taxation
• Experiences with tobacco taxation
• Impact of food taxes/prices on consumption and consequences
• Sugar-sweetened beverage taxation
• Oppositional arguments – myths & facts
3
Rationale for SSB Tax
• Efficient revenue generation
– Considerable revenue potential
– US Estimates suggest that 1¢ per ounce tax on SSBs would generate nearly $13.5 billion nationally
• Promote public health
– Growing evidence that raising price of unhealthy foods/beverages would reduce consumption, promote healthier eating, and improve weight outcomes
• Cover the external costs of obesity
– In US, health care costs from treating obesity estimated at $147-210 billion, with about half covered by public insurance programs
4
Impact of Taxes & Prices on Tobacco Use
5
Prices and Tobacco Use
• Increases in tobacco product prices:
– Induce current users to try to quit • Many will be successful in long term
– Keep former users from restarting
– Prevent potential users from starting • Particularly effective in preventing transition
from experimentation to regular use
– Reduce consumption among those who continue to use
6 Source: Tax Burden on Tobacco, 2014, and author’s calculations
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
25
35
45
55
65
75
85
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Pri
ce (
Jan
. 2015 d
ollars
)
Sale
s (
millio
n p
acks)
Year
Cigarette Prices and Cigarette Sales Vermont, FY1970-2014
Sales Price
7 Source: Tax Burden on Tobacco, 2014, BRFSS, and author’s calculations
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
15
19
23
1995 1998 2001 2004 2007 2010
Pri
ce (
Jan
. 2015
do
llars
)
Pre
vale
nce
Year
Cigarette Prices & Adult Smoking Prevalence Vermont, 1995-2010
Prevalence Price
8 Source: BRFSS, Tax Burden on Tobacco, 2010, and author’s calculations
y = 0.0283x + 43.083 R² = 0.371
45
50
55
60
65
70
350 400 450 500 550 600 650 700 750 800 850
% E
ve
r S
mo
ke
rs
Wh
o H
av
e Q
uit
Average price (in cents)
Cigarette Prices and Cessation US States & DC, 2009
9 Source: YRBS, Tax Burden on Tobacco, 2010, and author’s calculations
y = -0.0129x + 25.34 R² = 0.1721
7
9
11
13
15
17
19
21
23
25
27
350 400 450 500 550 600 650 700 750 800 850
Pr
ev
ale
nc
el
Average price (in cents)
Cigarette Prices and Youth Smoking Prevalence US States & DC, 2009
10 Source: Tax Burden on Tobacco, 2014, YRBS, and author’s calculations
13
18
23
28
33
38
$2.00
$2.75
$3.50
$4.25
$5.00
$5.75
$6.50
$7.25
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Sm
okin
g P
rev
ale
nce,
Hig
h S
ch
oo
l S
tud
en
tts
Pri
ce p
er
pack (
Dec 2
012 d
ollars
)
Year
Cigarette Price & Youth Smoking Prevalence Vermont, 1993-2011
Cigarette Price 12th grade prevalence
11
Taxes, Prices and Health US, 1980-2005
12
Impact of Food Prices on Diet and Weight
13
Selected Food Price & Adult Weight Trends 1961-2009, Inflation Adjusted
Source: BLS; NHES-I 1960-62; NHANES, 1971-74, 1976-80, 1988-94, 1999-2000, 2001-02, 2003-04, 2005-06 , 2007-08
13
18
23
28
33
190
210
230
250
270
290
310
330
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Fruits & Veg Fresh Fruits & Veg % Obese
14
Selected Food Price & Youth Weight Trends 1971-2009, Inflation Adjusted
Source: BLS; NHES-I 1960-62; NHANES, 1971-74, 1976-80, 1988-94, 1999-2000, 2001-02, 2003-04, 2005-06 , 2007-08
4
6
8
10
12
14
16
18
20
200
220
240
260
280
300
320
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Fruits & Veg Fresh Fruits & Veg 2-5 6-11 12-19
15
Selected Food Price & Adult Weight Trends 1961-2009, Inflation Adjusted
Source: BLS; NHES-I 1960-62; NHANES, 1971-74, 1976-80, 1988-94, 1999-2000, 2001-02, 2003-04, 2005-06 , 2007-08
13
18
23
28
33
140
160
180
200
220
240
260
280
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Carb. Bev. Sweets Fast Food % Obese
16
Selected Food Price & Youth Weight Trends 1971-2009, Inflation Adjusted
Source: BLS; NHES-I 1960-62; NHANES, 1971-74, 1976-80, 1988-94, 1999-2000, 2001-02, 2003-04, 2005-06 , 2007-08
4
6
8
10
12
14
16
18
20
140
160
180
200
220
240
260
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Carb. Bev. Sweets Fast Food 2-5 6-11 12-19
17
• Estimates from recent economic research show significant effects of food & beverage prices on consumption • 10% price increase reduces:
• Sugar sweetened beverage consumption by 12.1%
• Fast food consumption by 5.2%
• Vegetable consumption by 4.8%
• Fruit consumption by 4.9%
Food Prices and Consumption
Source: Powell, et al., 2013
18
Relatively limited research with increasingly strong findings
to date on impact of food and beverage prices and weight
outcomes:
• Higher sugary food prices reduce prevalence of overweight/ obesity
among adults (Miljkovic et al., 2008)
• 10% higher fast food prices would reduce prevalence of adolescent
obesity by almost 6% (Powell, et al., 2007)
• Higher soda sales taxes associated with reduced weight gain,
particularly for overweight kids (Sturm, et al., 2010)
• Higher carbonated beverage prices significantly related to lower
BMI in children (Wendt and Todd, 2011)
Food Prices and Weight Outcomes
Source: Powell et al., 2013
19
The weight of the evidence increasingly
indicates that changes in relative prices for
healthier and less healthy foods will affect
weight outcomes, with greater impact on:
• Lower income, less educated populations
• Younger populations
• Populations at greater risk for obesity
Food Prices and Weight Outcomes
Source: Powell, et al., 2013
20
Sugar Sweetened Beverage Taxes
21
Why Sugar-Sweetened Beverage Taxes?
• Link to obesity
• Several meta-analyses conclude that increased SSB consumption causes increased weight, obesity
• Increased calories from SSBs not offset by reductions in calories from other sources
• Other health consequences
• type 2 diabetes, lower bone density, dental problems, headaches, anxiety and sleep disorders
22
Soda Consumption & Obesity California Counties, 2005
Source: Babey, et al., 2009 and authors' calculations.
y = 16.44ln(x) + 6.1142 R² = 0.6656
40
45
50
55
60
65
70
10 15 20 25 30 35 40
%
o
f
A
d
u
l
t
s
W
h
o
A
r
e
O
v
e
r
w
e
i
g
h
t
o
r
O
b
e
s
e
% Adults Drinking One or More Sodas per Day
23
Carbonated Beverage Prices & Youth Obesity 1995-2009, Inflation Adjusted
Source: BLS; YRBS
10
10.5
11
11.5
12
12.5
13
143
145
147
149
151
153
155
1999 2001 2003 2005 2007 2009
Carb. Bev. Obese
24
States with Sales Taxes on Regular Soda (as of January 1, 2014)
25
Best Practices in SSB Taxation • From a public health perspective, specific excise tax
on SSBs only preferable to sales tax or ad valorem
excise tax or to a broader beverage tax that includes
low/no-calorie options
• More apparent to consumer
• Easier administratively
• Reduces incentives for switching to cheaper brands, larger
quantities
• Revenues more stable, not subject to industry price
manipulation
• Greater impact on consumption; more likely impact on weight
outcomes
• Disadvantage: need to be adjusted for inflation
Source: Chriqui, et al., 2013
26
SSB Taxation & Revenues
• Revenue generating potential of beverage tax is
considerable
• SSB Tax calculator at:
– http://www.yaleruddcenter.org/sodatax.aspx
• Tax of two cents per ounce could generate:
• $33.8 million in Vermont if on SSBs only
• Earmarking tax revenues for obesity prevention efforts
would add to impact of tax
27
Oppositional Arguments Myths & Facts
28
Impact on Jobs
• SSB tax will lead to decreased consumption of beverages
– Small loss of jobs in beverage sector
• Money not spent on beverages will be spent on other goods and services
– Gains in jobs in other sectors
• Increase in tax revenues will be spent by government
– Additional job gains in other sectors
• Small net increase in jobs likely
29
Impact on Jobs
• Our recent study (Powell et al., AJPH, 2014):
– Assessed impact of 20% SSB tax on employment in California and Illinois
– Assumed tax fully passed on to consumers
• California
– Net employment increase of 6,252 jobs
– 0.03% increase in employment
• Illinois
– Net employment increase of 4,509 jobs
– 0.06% increase in employment
• Similar small net increase in jobs likely in other states
30
Impact on Businesses
• Argument that SSB taxes will harm convenience stores
• Similar arguments made for tobacco taxes
– Conducted analysis of convenience stores (convenience only, gas stations, both), by state, 1997-2009
– State cigarette tax rates and smoke-free policies
– Controlled for state economic conditions
– Found that higher tobacco taxes associated with more convenience stores
• Consumers buy other products
• Overshifting of taxes
31
Impact on the Poor
• Greater price sensitivity of poor – relatively large reductions in consumption among lowest income populations, small reductions among higher income populations
• Health benefits that result from tax increase are progressive
• Use of tax revenues for obesity prevention, health promotion, and/or other programs targeting the poor offsets financial impact
32
Tax Avoidance
• Some tax avoidance likely for consumers near border, but not enough to offset the public health and revenue impact of tax
– 2011 survey of Vermont adults found that none surveyed who buy SSBs at gas stations or convenience stores and who do not regularly shop in New Hampshire would
cross the border to buy SSBs to avoid the tax.
• Similar concerns about tobacco taxes greatly exaggerated
– Real reductions in tobacco use
– Real increases in tobacco tax revenues
33 Source: NHIS, Tax Burden on Tobacco, and author’s calculations
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Cigarette Tax per Pack and Cigarette Tax Revenues Vermont, 1970-2014
Cigarette Tax Revenues (Millions) Cigarette Tax per Pack
34
Tax Avoidance • Revenue impact:
– Last Vermont tax increase with no change in New Hampshire tax for one year
• Vermont - July 1, 2006, increase from $1.19 to $1.79 per pack
• New Hampshire's tax of 80 cents per pack
– In the year following the increase:
• Cigarette tax revenues rose by $13.4 million (28.3%) in Vermont
• Cigarette tax revenues fell by $3.4 million (-2.4%) in New Hampshire
– Claims of cross-border shopping and other tax avoidance efforts clearly exaggerated
• NH saw revenues fall after reducing cigarette tax in July 2011
35
Summary
36
Summary
• Tobacco tax increases have significantly reduced tobacco use and its consequences
• Similar potential for using sugar sweetened beverage taxes to promote healthier eating and curb obesity
– While generating considerable revenue for obesity prevention and health programs
• Economic counterarguments false or greatly overstated
37
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