Did you know that in some cities there is a tax on soda? If you buy a soda in Albany (CA), Berkeley, Boulder, Oakland, Philadelphia, San Francisco, or Seattle then the government gets some of the money that you spend on it.
Why? Well taxes on sodas (and specifically sugary drinks) are in a group of what’s called “sin taxes” or taxes on things like cigarettes, alcohol, and sugary drinks.
That’s odd. Sugary drinks do not sound like they should be in the same category as cigarettes and alcohol.
Let’s get into it a little bit more. Researchers have shown that too much sugar is not good for you and can lead to health issues. Further, apparently people treat sugar in sodas different than sugary solid foods – they might eat less later in the day if they have a doughnut in the morning, but they don’t change their food habits if they have a sugary drink. So, it seems that sugary drinks are especially not good for you.
Further (and importantly for the reasoning of the tax), if sugary drinks are not good for your health, then I might have to pay for it! How does that work? Well people are on either public or private health insurance. If other people have health issues because of too much sugar consumption, then it could (at least in theory) raise the overall cost of insurance. The concern here is that other people are impacted by someone’s consumption of too much sugar. It economic terms, this is an externality.
Definition reminder. An externality occurs when a third party is affected by your consumption or production of something. For more on externalities, see this post on chocolate and chili or thi