The 'Coke Zero Plan' for Tax Reform?

Readers of this blog will be familiar with the Zero Plan from the Fiscal Commission's tax reform effort. An article in the newest issue of Health Affairs details (subscription needed for full article) the effects of the Coke Zero Plan (our name, not theirs): imposing a tax on sugar-sweetened drinks, more commonly known as a "soda tax." The study measured the effects of a one cent per ounce sugary drink tax (12 cents for a 12 ounce can, etc.) on the consumption habits and health of people between the ages of 25 and 64. 

According to the authors, the tax they studied would raise on average $13 billion per year, which is in line with the Domenici-Rivlin plan, whose similarly-sized excise tax would raise $156 billion through 2020. What is more interesting than the revenue effects, though, is the effects they estimate the tax will have on beverage consumption and health costs.

The authors estimate that the one cent per ounce tax would reduce consumption of sugar-sweetened drinks by a pretty sizeable 15 percent. This reduction in consumption would result in modest but positive health effects, reducing diabetes incidence by 2020 by about 3 percent and average weight by about a pound. Also, the incidence of strokes and heart attacks would be reduced. As a result, they estimate, national health spending (public and private) would drop by $17 billion through 2020 (a portion of this savings would come from federal spending, though it is not clear how much nor what would happen over the longer run). Longer term effects, at least on total national health spending, could be more significant.

Health Effects of Excise Tax
Group Consumption (servings/day)    
Without Tax With Tax Diabetes reduction Weight reduction (lbs.)
All, 25-64 0.56 0.47 2.6% 0.9
Men, 25-44 0.79 0.67 3.4% 1.3
Women, 25-44 0.63 0.53 2.8% 0.9
Men 45-64 0.49 0.42 2.3% 0.7
Women 45-64 0.33 0.28 1.6% 0.4

As policy makers debate the various policies to reduce the deficit, they should be looking for win-wins which include non-budgetary benefits. Reducing the deficit while lowering private health costs and improving overall health would certainly fall in that category.