It’s the hottest political story in Santa Fe, yet there aren’t any candidates on the ballot. We’re not even sure there will be an election at all. But that hasn’t stopped the bigwigs of industry and politics from buying expensive ads promoting and blasting a proposed sugar tax to fund pre-K in Santa Fe.
Should the city levy an excise tax of two cent per fluid ounce for certain sugar-sweetened beverages? City Council on Wednesday is scheduled to vote on whether to put that question up for a special election. The vote falls amid an ugly debate. If you listen to the airwaves or check your mail, you might think one side hates children and the other wants to see small businesses fail.
We’re taking a step back from the fiery shitstorm of local politics to see how Santa Fe stacks up in a national trend that’s seen cities like Philadelphia and Chicago impose the levy.
John Cawley, a Cornell University economist, co-authored a paper on the nation’s first-ever soda tax, which kicked off in 2015 in the progressive stronghold of Berkeley, California. Since then, he and his research partner David Frisvold of the University of Iowa, have kept a close eye on similar proposals popping up across the country.
Ahead of Wednesday’s vote, we reached Cawley via phone about his research and how Santa Fe could learn from other cities collecting cash on Coke.
So this is the first time you've heard of a special election just for a soda tax?
Yes. In general, I think that's tricky. I don't know how that changes your set of voters. In a presidential election, you're getting the broadest group. If it's just on one issue, you'll get the people with the strongest opinions.
How did you get interested in study soda taxes?
I've been studying the economics of obesity since the mid-‘90s. God, has it been 20 years now? This is probably the most active policy area right now. When I heard Berkeley had passed one, which took effect Jan. 1, 2015, we got people in the field and collected data from every store in Berkeley, as well as a subset of stores in San Francisco to serve as a control group.
People were saying the tax would be 100 percent passed on [to the consumer]. But what we found was that less than half of the tax passed on. These taxes tend to be on the distributors, the people who sell to the stores.
My understanding is that a lot of these taxes are debated in this broader dialogue of public health, whereas in Santa Fe the focus has been on early childhood care. Have you encountered in other cities where health is a secondhand conversation?
Yeah, so that's like Philly. Philly had talked about having a soda tax several times. And sometimes it was put out as a public health measure. Originally, the Philly soda tax was going to be 3 cents an ounce on caloric drinks. But then they got pushback, like, "You're being a nanny state. You're being too paternalistic."
So they did a 90-degree turn and said it would be a revenue-generation measure. Instead of doing 3 cents an ounce on caloric drinks, we're going to make it one and a half cents on both caloric and diet drinks. From a public health perspective, that's not actually a great idea, because you want to give people the incentive to switch from caloric drinks to non-caloric drinks.
One of the concerns some people have right now is rolling out the tax and finding a collecting mechanism. How has that gone in other cities?
The answer is mixed. Berkeley really had to rush, because they passed it in November and had to have it ready by January. In early January, they just weren't set up. They literally didn't have instructions given out to stores. They hadn't clarified how you pay the tax. There was so much confusion that the city came out and said, "We're not going to collect for another couple months."
Presumably, Santa Fe would have more time and learn from Berkeley's mistakes. I think small businesses need a lot of guidance in how to implement this correctly.
Another criticism of the tax that's been floating around here is that it's a regressive tax that will disproportionately impact poor people. How true is that?
Any tax on food is a regressive tax. Poor people spend a higher percentage of their disposable income on food than rich people do. On the other hand, you could argue that obesity imposes costs on society. Obesity, and just generally drinking highly caloric beverages, contributes to diabetes and other very expensive medical problems that all of us end up paying for through Medicaid assistance, Medicare and group health insurance. There is a legitimate economic rationale to tax things that promote obesity and diabetes.
As I mentioned, another issue is, especially among women, obesity is more common among lower-income people. Anything you do to try to reduce obesity will fall more on lower-income people. It seems like a lot of cities and proposals try to deal with that in part by earmarking these revenues for progressive causes, like childcare, which disproportionately benefits lower-income people. And public health programs for public school children and things like that. It seems like there is an attempt to use these revenues to benefit lower-income people as well.
What has the impact of these taxes been on health and consumption of soda?
We don't have great evidence on that yet. David Frisvold and I, as well as Mathematica Policy Research, are in the process of answering that question for Philadelphia; Cook County, Illinois; and the Bay Area in California. We're collecting baseline data before the taxes go in and we're going to collect data after on sales and consumption.
There's incomplete information on changes in Berkeley. But the evidence that exists suggests consumption went down. In general, consumption of soft drinks went down, even without these taxes. So you really need a control group. This study from Berkeley was able to subtract out trends in San Francisco.
I remember when Mayor Bloomberg first proposed limiting the sizes of drinks in New York City, and if I recall correctly, New York also considered some kind of soda tax. But there was uproar against those efforts. What's changed between then and now, now that you're seeing cities pass these ideas?
What's changed over time is, first of all, there's more widespread awareness of the problem of obesity and diabetes. Two, although I think a broader tax makes more sense, there's been a political decision to focus on sugar-sweetened beverages as something that is particularly vulnerable for a tax hike. Nobody really needs to have soda. We worry about kids consuming too much. That focus has made it easier. Again, it's not removing choice from people, it's just signaling through a tax that there's a public health problem or using the tax to internalize the external costs of obesity-related illnesses and chronic disease.
Even in this latest round in November, there are storeowners going on the record with newspapers and television stations saying, ‘This isn't good for my business. It's onerous.’, And there are a lot of public health people in favor of it too. There's also more libertarian-minded people who feel like it's government overreach. These are contentious issues, but it's a big change.
Before Berkeley, no city or state had ever passed these. Since then, it's seemed more feasible, so it's really spreading.
You have some ideas of how these taxes could be better implemented or more effective. Could you touch upon that for a moment?
Obviously, the nice thing about city-level taxes is it allows each individual city make decisions about what's best for them. A limitation of it is any tax at the city level is pretty easy to evade. In Berkeley, we found evidence consistent with cross-border shopping. What we found is the stores closer to the border, they passed through less of the tax.
When I was in Philadelphia collecting data on the impact of the soda tax there, people volunteered to me how to avoid the soda tax by crossing borders to shop where it wouldn't be levied. I didn't even ask. People are aware.
If you want the tax to have more bite, it should be implemented at a bigger geographic level. Ideally, nationally, or at least bigger states. The other issue is it's also easy to avoid by switching to something that's not taxed. So in most of these places, cities differ a little bit of what falls under the tax. They tend to include exemptions for things that are mostly milk. So you could have a Starbucks chilled Frappuccino that's exempt, even though it has a lot of sugar and fat. And that's exempt? But in Philly, a Diet Coke isn't?
The other thing is taxing broader range of products, so you can't evade it by switching to another energy-dense drink or food.
Another thing that would make sense is a tax that is a sliding scale. Currently, these taxes in the US are just one rate. It doesn't matter how much sugar you have.If you have it, you get taxed. Whereas in the United Kingdom, they're going to be implementing a sliding scale with the logic that you want to give incentives to manufacturers to reformulate their products. For example, Mountain Dew has more caffeine and sugar than other drinks. But under the current taxes, they pay the same tax per ounce as Coke. If it were a sliding scale based on calories or whatever, then it would give manufacturers to cut sugar by 10 percent or something.
Have you looked at similarities between what's happening now with soda taxes and what's happened before with cigarettes or alcohol?
It's a really good analogy. I think that's why there's been this narrow focus on soda pop, because it's then a better analogy to smoking. You don't ever have to smoke. You can smoke zero and that's actually ideal for your health. Sugar-sweetened beverages are also something you don't ever have to have. Whereas the trick with taxing a much broader range of food is that people have to eat to live. Then you might be more worried about the regressive nature of the tax.
One thing analogous with smoking, in particular, is the industry is well organized. And they're very quick to advertise and defend themselves. The public health community is also well-organized. I've seen calls to demonize the industry, to make industry the enemy.
And so, as an economist, I think back to Adam Smith. He said, "It's not because the baker is benevolent that he makes bread for us. The baker is baking bread because we pay him and we want bread." The analogy here is the soda industry isn't an evil set of people who woke up one morning and decided, "What can we invent that will make kids fat?" The soda industry is giving us sugary drinks because people like sugary drinks. They voluntarily came out with diet drinks because we want them. Anything people want, they'll sell us. Recently, the beverage industry has gone a big way into bottled water, which they didn't used to be in. They see that as an option people go in.
To the extent [that the] industry is playing dirty, I think they should be called on it. But I think there should be a recognition that we have a genetic disposition to enjoy sugar. That's been selected for through natural selection. We like sugars and fats because they give us more calories.
For our readers, is it fair to say you think these taxes are a good idea?
The way I put it is, I think there's an economic rationale for these taxes. There are external costs of people consuming a lot of sugar-sweetened beverages.
Have you done any consulting work for the soda industry or cities proposing taxes on sugar-sweetened beverages?
The work I've done is independent. I've done research on it and published research, but it's not funded by the beverage industry. It's not paid for by the cities. It's independent. EDITOR'S NOTE: An earlier version of this article misidentified the University of Iowa researcher working with John Cawley. His name is David Frisvold, not John Frisvold.
Santa Fe Reporter