Sugar Tax Drives Consumers to Drink More Calories, Hop Border
Consumer Power Report #546
The tax man cometh for purveyors of sugary drinks—and for the consumers forced to absorb a slew of new, not-so-sweet excise taxes. In a government-spearheaded effort to promote healthier lifestyles and fill public coffers, more and more U.S. cities are assessing taxes on sugar-sweetened beverages (SSBs). Lawmakers are considering imposing similar taxes statewide.
Cities are taxing retailers 1 to 2 cents per ounce of SSB sold. In most cases, retailers pass this cost on to shoppers. The idea is to tax citizens unto greater health by dissuading them, one cent at a time, from buying soda and other sweetened drinks.
Data on the effectiveness of such taxes is just now surfacing, and much of it lends itself to being spun however ideologues want. But market principles reign. Sugary drink taxes drive some consumers to purchase substitute products that pose equal or greater health risks. The same taxes drive other consumers to buy equal or greater quantities of sweetened beverages outside city limits.
Probably to no one’s surprise, the first penny-per-ounce excise tax on soda and other SSBs originated in Berkeley, California—home to the eponymous university, infamous for its imperialistic brow-beating and violent riots, the preferred form of expression of masked protestors who lit objects on fire and caused $100,000 worth of damage to protest a college political group’s invitation of provocateur Milo Yiannopolous earlier this year.
Philadelphia followed Berkeley’s lead in January 2017 by implementing a 1.5-cent tax per ounce of not only drinks with added sugar, but beverages artificially sweetened with sugar substitutes. The tax increased the cost of a two-liter bottle of soda by $1.01 and a 24-pack of soda by $4.32, The Heartland Institute reported in May.
Adopting government-imposed diets is catching on. The city of Albany, California implemented a penny-per-ounce SSB tax in April. The first collection was due in May. Oakland’s penny-per-ounce tax on SSBs will take effect on July 1. San Francisco’s will hit in 2018.
Not to be outdone, Boulder, Colorado will implement a tax of 2 cents per ounce of SSB on July 1. Voters approved the tax at the ballot box by a margin of eight points in November 2016.
Just how effective are these taxes? That depends on what people hope to achieve by imposing them. The commonest purported goal is to deter people from buying drinks supposedly likely to make them fat or cause health problems.
How provincial. In the immortal words of Chicago Mayor Rahm “The Godfather” Emanuel and former chief of staff to President Barack Obama, “You never want to let a serious crisis go to waste. And what I mean by that [is] it’s an opportunity to do things that you think you could not do before.”
Just ask greater Chicago. While taxing citizens in order to slim them down, government coffers are fattening up. Commissioners of Cook County, Illinois (home to Chicago) hope to raise $224 million annually—an average of $43 per each of 5.2 million residents—by raking off 1 cent per ounce of SSBs starting on July 1, 2017, the Chicago Tribune reported after officials voted 9–8 to impose the tax on November 10, 2016. Chicago already assesses “a 3 percent tax on retail sales of soft drinks in cans or bottles and a 9 percent tax on the wholesale price of fountain drink syrup,” the Tribune reports.
Whether increases in tax revenue benefit citizens is in the eye of the beholder. Apparently, so is whether SSB taxes are successfully changing consumer behavior. An April 2017 study conducted one year after Berkeley implemented its tax concludes the findings “suggest promise for this policy.” After all, SSB prices rose, SSB sales declined, and consumers bought healthier substitutes, the researchers wrote in the journal PLOS Medicine.
Yet the tax is a colossal failure when measured by other findings of the same study. The average consumer’s daily caloric intake fell by 6 calories per day for taxed beverages—but increased by 31 calories per day for untaxed beverages, the American Beverage Association noted and Politico reported on April 19.
In other words, Berkeley’s tax drove consumers to drink. But instead of drinking sugary beverages, shoppers slurped up milk and other dairy-based drinks in greater caloric quantities than they gave up by kicking SSBs.
The same study found sugary beverage sales increased by 7 percent just outside Berkeley’s city limits, as Dr. Chuck Dinerstein, a senior medical fellow at the American Council on Science and Health, has noted and Time reports.
The evidence suggests the only lifestyle changes Berkeley’s tax on sugary drinks has wrought is to persuade sweet-tooth consumers to drive farther to purchase taxed beverages and to increase their net calorie intake.
Yes, the tax man cometh. He may not tax you to death this time. But he surely won’t tax you to health.
—Michael T. Hamilton (email@example.com, @MikeFreeMarket) is a Heartland Institute research fellow and managing editor of Health Care News, author of the weekly Consumer Power Report, and host of the Health Care News Podcast.
IN THIS ISSUE:
DON'T LET HEALTH INSURERS HOLD AMERICANS HOSTAGE FOR COST-SHARING PAYMENTS
The coming weeks will see U.S. health insurance companies attempt to preserve what amounts to an extortion racket. Already, some carriers have claimed they will either exit the Obamacare exchanges entirely in 2018, or submit dramatically higher premium increases for next year, if Congress does not fund payments to insurers for cost-sharing reductions. While insurers claim “uncertainty” compels them to make these business changes, in reality their roots are the companies’ gross incompetence and crass politics.
While Obamacare requires insurers to lower certain low-income individuals’ deductibles and co-payments, and directs the executive agencies to reimburse insurers for those cost-sharing reductions, it nowhere gives the administration an explicit appropriation to do so. The Obama administration made payments to insurers without an explicit appropriation from Congress, and was slapped with a federal lawsuit by the House of Representatives for it.
Insurers claim they need certainty regarding the payments before committing to the exchanges for 2018. But insurers never had a guarantee about the payments continuing in 2017. …
For insurers to assume that the cost-sharing reduction payments would continue through 2017, let alone 2018, required them to ignore 1) public warnings in articles like mine; 2) Collyer’s ruling; 3) the fact that President Obama would leave office on January 20, 2017; and 4) the apparent silence from both Hillary Clinton and Donald Trump during last year’s campaign on whether they would continue the cost-sharing reduction payments once in office.
Given those four factors, competent insurance executives would have built in an appropriate contingency margin into their 2017 exchange bids, recognizing the uncertainty that the cost-sharing reduction payments would continue during the new administration. Instead, some insurers largely ignored the issue. …
Responding to this extortion racket requires several layers of accountability. First, insurers must accept responsibility for their persistent refusal to address the cost-sharing reduction issue sooner. The Securities and Exchange Commission should investigate whether publicly traded insurers failed to disclose material risks in their company filings by neglecting to mention the clearly foreseeable uncertainty surrounding the payments.
Likewise, the Justice Department’s antitrust division should examine whether insurers’ 2017 premium submissions represent an instance of illegal collusion. If the insurance industry collectively neglected to include a contingency margin surrounding the cost-sharing payments—either to keep premium increases low before the election, or to strong-arm the incoming administration to continue to fund them—such a decision might warrant federal sanctions.
Finally, conservatives and the Trump administration should shine a bright light on state insurance commissioners’ review of premium submissions. Commissioners who approve large contingency margins for 2018 due to uncertainty over cost-sharing reductions, yet did not require a similar contingency margin for 2017 premiums, can be reasonably accused of gross incompetence, playing politics with health insurance premiums, or both. …
SOURCE: Chris Jacobs, The Federalist
The price tag is in: It would cost $400 billion to remake California’s health insurance marketplace and create a publicly funded universal health care system, according to a state financial analysis released Monday.
California would have to find an additional $200 billion per year, including in new tax revenues, to create a so-called “single-payer” system, the analysis by the Senate Appropriations Committee found. The estimate assumes the state would retain the existing $200 billion in local, state and federal funding it currently receives to offset the total $400 billion price tag. …
It remains a long-shot bid. Steep projected costs have derailed efforts over the past two decades to establish such a health care system in California. The cost is higher than the $180 billion in proposed general fund and special fund spending for the budget year beginning July 1.
Employers currently spend between $100 billion [and] $150 billion per year, which could be available to help offset total costs, according to the analysis. Under that scenario, total new spending to implement the system would be between $50 billion and $100 billion per year. …
SOURCE: Angela Hart, The Sacramento Bee
Some Republican senators are considering the possibility of a narrow, standalone healthcare bill that would ensure funding for Obamacare’s insurer subsidies, but are getting resistance from House Republicans.
The Senate is wrestling with how to handle a larger, House-passed bill to partially repeal and replace Obamacare. But that process could take months, and insurers are nervous that these cost-sharing reduction payments could soon be reduced or eliminated by the Trump administration unless they are guaranteed by new legislation.
Insurers have said they need to know as soon as possible whether the payments will be made for 2018 since they are formulating rates for next year and have to publicize them in a matter of weeks. Without the payments, insurers have said, they could be forced to drastically raise premiums or leave Obamacare’s exchanges altogether.
Given this potential problem, Sen. Ron Johnson, R-Wis., told reporters Monday he wants to do “something very quickly short-term to stabilize the insurance markets for 2018.”
“This process has dragged on longer than I would have liked,” said Johnson. “They need some certainty as to what is going to happen in 2018.”
Sen. Bill Cassidy, R-La., agreed Congress needs to swiftly appropriate the CSR payments, which reimburse Obamacare insurers for lowering copays and deductibles for low-income customers.
“We need to stabilize premiums, or we are not gonna have a market,” he said.
But Johnson admitted that the idea of a standalone bill that just deals with CSR payments is falling flat in the House. He said he met with some House lawmakers on Monday afternoon, but came away empty.
“There is obviously resistance to it,” he said. “I am just saying on the record [if] that is what we need to do to stabilize the markets I would be willing to swallow something I normally wouldn’t support.”
Other senators said they have heard of a similar pushback to the idea of a narrow bill that gives insurers a quick fix.
“It’s my understanding that the House has not been interested in appropriating the funds,” Collins said. …
SOURCE: Robert King, Washington Examiner
State Republicans and Democrats are sparring over a proposal to keep some key Affordable Care Act provisions in place in Michigan, even if Congress succeeds in repealing Obamacare.
On Monday, Democratic lawmakers held a series of news conferences across Michigan touting a “Health Care Bill of Rights.” The resolution would require insurers to continue key Obamacare provisions, even if the law is repealed. They include:
- Protect People with Pre-Existing Conditions
- Prevent Massive Rate Hikes
- Prevent Annual or Lifetime Health Care Coverage Caps
- Protect Essential Health Benefits (including maternity & newborn care, prescription drugs, hospitalization and emergency services)
Christine [Greig] is the State House Minority Floor leader. She says even Republican state lawmakers can support the resolution.
“Everyone knows someone in their district with a preexisting condition, (or) with children under the age of 26 who need additional coverage,” says Greig.
But Republicans see little to support.
The state GOP issued a statement accusing the Democrats of putting “party over people” by “championing a broken health care act that continues to fail Americans.” …
SOURCE: Steve Carmody, Michigan Radio