Implications of the Sugar Tax in Berkeley, California

In todays modern society, one of the fastest growing health issues is the overconsumption of sugar, leading to diseases such as obesity and diabetes. These sugary drinks are linked to over 25,000 deaths in the US each year and costs the government millions in health care costs. Thus, creating a negative externality; an action which gives rise to side effects on third parties who are not part of these actions. Some politicians claim that they would like to see a reduction of 10% in quantity demanded of SB’s in order to eliminate the negative externality, while others would like as much of a decrease as possible because sugary beverages (SB’s) cause many diseases while yielding few, or arguably, any benefits. Pro- soda tax supporters claim if SB’s did have benefits, the harm caused by diseases stemming from overconsumption of SB’s outweigh them. Thus, there is debate over the optimum quantity that should be produced in the market, and is fairly subjective. There are three primary ways governments across the world are trying to reduce the consumption of sugary beverages, restricting advertising, reducing availability, and fiscal policies. The recent trending phenomenon of the sugar tax falls under the fiscal policies category. The policy is aimed to decrease consumption of sugary beverages, so far, it has has been implemented in various countries worldwide, such as Mexico, and Denmark, but has also been implemented in regions and states in the US such as San Francisco. In November 4th 2014, in Berkeley California, the sugar tax won with a 76% majority, and the tax was finally levied on January 1st 2015, the first American sugar tax ever implemented. The tax is a 1 cent per ounce tax on any beverage with a sugar- based sweetener or artificial sugar substitute. This tax has caused beverages such as the 67.6 ounce Coca-Cola Classic to rise from its original price of 1.99 to 2.67 dollars, increasing the price by 34%. Due to price increases on these products, consumers, especially those from lower socio-economic status are more likely to reduce their consumption of sugary beverages. Overall, the SB tax in Berkeley, California has directly reduced city-wide consumption by 20%. Data also suggests that some consumers have switched to healthier alternatives such as water, however, others have continued to consume SB’s that were purchased from nearby cities such as San Francisco. However, limitation of this data is that it’s unclear whether the soda tax is directly responsible for this change in quantity demanded or whether it is just a coincidence. The government has gained 2.5 million USD from this tax, which due to Measure D, will be strictly spent on nutrition & health issues. However, this large sum of money also carries an opportunity cost, as the citizens of Berkeley could have spent that money elsewhere. Furthermore, the tax is regressive, which harms low income citizens of Berkeley more, reducing their disposable income and possibly their living standards. Also, the tax harms small business more than large corporations, who have already begun to adapt by producing smaller cans, which are more attractive to consumers. However, for the majority of consumers, the tax in Berkeley has provided incentive to decrease consumption, which will in turn decrease health issues. It seems the benefits of the sugary beverages tax outweigh the drawbacks, and in the future, the government in Berkeley is likely to see a decrease in amount of revenue spent on health care costs related to diseases caused by the over consumption of sugary beverages. Unfortunately, it is too early to tell whether the tax will continue to be effective in the future. Perhaps the tax may continue to be effective and continue reducing the negative externality, but it could also quite possibly become a failure like Denmark as consumers find cheaper and illegal ways to obtain their sugary beverages. The future of the sugary beverages tax is a topic that should be closely monitored and investigated as the market for sugary beverages changes.