Are sugary drink taxes economically beneficial for lower-income communities?

Sugar-sweetened beverages are a known contributor to several health issues, including poor diet quality, weight gain and diabetes. While several studies have shown that taxing sweetened beverages significantly reduces purchasing, questions have been raised about whether the taxes place a greater economic burden on lower-income households.

New research from the University of Washington has examined the economic equity impacts of sweetened beverage taxes in three cities: Seattle, San Francisco and Philadelphia.

“Sugar-sweetened beverages are the new tobacco,” said James Krieger, senior author and clinical professor of health systems and population health in the UW School of Public Health.

“Public health researchers and others have been working for some time to reduce sales of these beverages. Taxes worked well to reduce tobacco purchases, and they’ve been applied and appear to work equally well in sugary drinks.”

The study showed the tax paid by households accounted for a larger proportion of income for lower-income households, but still only 0.01 to 0.05 percent. The annual per capita dollar amount that households paid toward the tax, between $5.50 and $31, didn’t differ by income level.

The researchers also found that sweetened beverage taxes redistributed dollars from higher- to lower-income households. More dollars went toward funding programs that benefit lower-income communities than those households paid in taxes. The annual net benefit to lower-income communities ranged from $5.3 to $19.1 million per year across the three US cities.

“Cities have prioritised funding programs that benefit lower-income populations, which makes sweetened beverage tax policies more economically equitable,” Krieger said.

For example, revenue raised by Seattle’s sweetened beverage tax has been used to fund programs and services that increase access to healthy food and support child health and learning in early childhood. In 2020, sweetened beverage tax revenue was also used to provide support to communities disproportionately impacted by the COVID-19 pandemic.

The researchers studied the volume of beverage purchases made in stores by 1,141 households in the three US cities to estimate taxes paid by households during the first year after tax implementation. They then used city population data to calculate the per capita amount of sweetened beverage tax paid by income level.

The authors also reviewed public documents and contacted city representatives to find the dollar amount of annual tax revenue and the amount invested in programs serving lower-income communities.

“There aren’t a lot of studies right now that look at actual household purchases of these taxed beverages,” said co-lead author Melissa Knox, UW associate teaching professor of economics.

“They mostly look at retail-level data. But you don’t know what people are doing at a household level. They could be going to another city to buy their sweetened beverages and bringing them back to Seattle. This study catches all of that. We’re just looking at households that live in these cities and the totality of everything they report having purchased.”

The study shows that sweetened beverage taxes “can be an economically progressive policy,” Krieger said. Seven local jurisdictions in the United States, the Navajo Nation and at least 45 other nations have implemented sweetened beverage taxes.

“These taxes selectively and specifically benefit people with lower incomes to a greater extent than people with higher incomes, because the money that’s raised by taxes goes toward programs serving lower-income communities,” Krieger said. “That’s from the economic point of view.