Taxes on soda and other sugary drinks help reduce how much we drink, but they also come at a social price, and they won’t halt the increasing rates of obesity and diabetes. That’s according to a report released last month by the Urban Institute, an economic policy think tank in Washington, D.C.

The 31-page report entitled “Should We Tax Unhealthy Foods and Drinks?” offers nuanced recommendations for policymakers. It approaches the soda tax as an issue at the confluence of culture, finance, economics, and basic biology.

At the heart of the report is how excessive sugar intake poses a health risk to society and what policymakers can do to mitigate the problem. The report is not a blanket-tax policy recommendation but an assessment of what works, what doesn’t, and why.

“It’s complicated,” Donald Marron, an economist with the Urban Institute and one of the report’s three authors, told Healthline. “If policy makers do decide to go down this route, there are better and worse ways to do it.”

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To Tax or Not to Tax?

The average American consumes roughly 45 gallons of soda a year, according to the National Institutes of Health (NIH). Medical experts draw a direct correlation in the rise of soda consumption to the rise in obesity and diabetes in the United States.

NIH statistics show that nearly one-third of all adults living in the United States are obese. In addition, nearly 10 percent of all adults have diabetes, nearly triple the rate in 1999. Medical costs for obesity come to $2 trillion annually, according to the report.

In recent years, soda taxes have gained traction as the go-to method for governments in the battle against the bulge and related health issues. To date, six countries and one city in the United States currently levy taxes on soda or sugar-centric products — all with varying degrees of success.

But soda taxes have also failed to pass in dozens of other places, according to Lauren Kane, spokesperson for the American Beverage Association (ABA).

“The public does not like these taxes,” she said. “They’ve been defeated over 40 times in the United States since 2008.”

The defeat of soda taxes is usually thanks to lobbying by the ABA. In 2010, the group spent $16 million to repeal Washington state tax legislation. In 2012, it spent $4 million to defeat soda tax ballot measures in the California cities of Richmond and El Monte, according to a report published by the American Journal of Public Health.

The organization views the Urban Institute report as reinforcement of their stance that soda taxes don’t work.

“I don’t think it endorses soda taxes at all,” Kane told Healthline. “They’ve come to the conclusion that there is no silver bullet for solving obesity.”

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Price Sensitivity

The American consumer is sensitive to price, and research shows that soda is no exception. When the price of sugary drinks increases, shoppers respond with about a 10 percent drop in purchases, according to the study.

The reports notes that a tax based on sugar content rather than volume is the best bet to reduce sugar intake. It gives consumers the choice to purchase drinks with lower amounts of sugar at lower prices and can also pressure manufacturers to reformulate their products.

But does that mean that taxes on sugary drinks can improve the overall nutritional health of a given community? Marron isn’t so sure because, to put it simply, “not everyone reacts to sugar the same way.”

“Soda taxes are more fluid because obesity is also tied to hereditary factors such as metabolism,” he said. “Even the best-designed sugar tax is still going to be a fairly limited instrument.”

Dr. Caroline Apovian, a professor of medicine and pediatrics at Boston University School of Medicine and the director of the nutrition and weigh management center at Boston Medical Center, told Healthline that she agrees with much of the report’s findings.

However, she does dispute the notion that a soda tax won’t significantly help people lose weight or improve health. A 20-ounce bottle of soda contains up to 65 grams of sugar, roughly 15 teaspoons worth. As Apovian points out, when you consume that amount of sugar in liquid form, it registers differently in the brain.

“It’s easier to glide down sugar in that form, because you don’t feel full,” she said. “Sugar accounts for 7 percent of the average daily caloric intake. I think it’s a big factor [in weight gain] and it’s a factor that is not needed in the American diet.”

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Low-Income Consumers Hit Hardest

One area that opponents and supports of soda tax do agree on is who is hit the hardest when a soda tax is imposed. The report points out that it’s usually poorer people who feel the biggest financial strain.

Using a scenario in which the U.S. government imposed a penny-per-ounce tax on sugary drinks, the report shows that households in the poorest people would see a financial burden four times that of those in the wealthiest income bracket.

“These taxes are not gigantic, but still for people living on a tight budget, every dollar matters,” Marrow said.

He adds that government officials could ease some of that burden by spending the tax revenue on physical education programs in disadvantaged communities. That was the idea behind the soda tax plan for San Francisco during a recent election, but the proposal fell short of the required two-thirds vote.

Apovian suggests policymakers go one step further and reduce the price of milk to offset the costs. “You have to make something else cheaper for people to buy,” she said.

In the same election cycle that failed to pass a soda tax in San Francisco, the city of Berkeley — just across the bay — succeeded. The city now requires a penny-per-ounce tax on drinks with added sugar. However, early analysis suggests that some residents are just going to neighboring Oakland avoid the tax.

Getting Around Sin Taxes

The United States hasn’t ever seriously considered a national soda tax, although a recent editorial in the Washington Post called for one. However, Denmark, Finland, France, Hungary, Mexico, and the Navajo Nation did take the plunge.

In 2011, Hungary slapped a tax on prepackaged products that contain specific amounts of fat, sugar, salt, and caffeine. Early results show that consumption of such products dropped and that food companies reformulated their offerings to stay below the tax threshold. 

That same year, Denmark imposed a tax on foods that contain significant saturated fat, and consumers responded with a 15 percent reduction in purchases. But when reports surfaced that Danish shoppers evaded the tax by purchasing similar items in other countries, and complaints about the cost burden grew loud, the tax was rescinded.

Mexico also passed a tax on sugar-sweetened drinks and foods in 2014. The tax is one peso per liter, around 8 cents per ounce. Early reports show the tax has resulted in a 12 percent jump in prices and a 10 percent drop in sales.