I’m of two minds about revenue-starved states that are taking on powerful bottled soda interests by proposing hefty taxes on calorically sweetened soft drinks. On the one hand, taxes on external costs may, in principle, increase efficiency rather than decrease it. On the other, while it is plausible that sweetened drinks have uniquely unhealthy properties, the argument doesn’t match the slam-dunk health externalities case against cigarettes. Nor do we have a solid estimate of how much tax would be needed to cover the externality, or whether imposing the tax on soft drinks alone would do the trick. It is worth remembering, in any event, that the taxes would almost certainly be highly regressive.
For a thoughtful discussion of these issues, check out Justin Fox’s column on Time’s blog.
