In the past year many states and cities have proposed adding a tax on soda and other sugary drinks in order to raise revenue that would close their budget gaps. Despite backing from many public health groups, the measures have largely failed but will likely be put back on the table in the future. Contrary to my usual anti-tax opinions, I actually think that a soda tax is a good idea, at least to a certain extent.
Before I explain why, I want to make two important points. First, I think that states should seek to close their budget gaps primarily, if not exclusively, through spending reduction and not through tax increases. Second, I think that the government is never justified in passing laws with the intent of discouraging unhealthy behavior unless such behavior causes harm to those who do not participate (a situation economists refer to as an externality problem).
I support a level of taxing soda and other sugary drinks (though not necessarily the level of taxation being proposed) because it is such an externality problem. Soda consumption in the US is a major factor contributing to obesity. Obesity increases the incidence of obesity related diseases. When people get sick more often, demand for health care goes up. When demand for health care goes up, the price of health care goes up. Therefore, people who drink too much soda and become obese raise the cost of health care for those who drink soda in moderation and maintain a healthy weight.
While taxation is not always the best solution to an externality problem, I believe that it clearly is in this case. Therefore, I support a soda tax that will discourage people from drinking soda to the extent that the excess burden placed on the healthcare system is relieved, and no further. Despite my misgivings about raising taxes to cover budget deficits, however, I realize that some tax increases are inevitable. I therefore would also support a soda tax over other sales/excise tax increases. As I said earlier, I believe that it is wrong for the government to pass a tax for the purpose of discouraging unhealthy behavior, but I do feel that a tax that is intended to raise revenue that results in discouraging unhealthy behavior is better than a tax intended to raise revenue that doesn't discourage unhealthy behavior.