Fizzling Controversy: Soda Tax South of the Border

Fizzling Controversy: Soda Tax South of the Border
From, by Molly Steinfeld

Recently, Mexico’s Supreme Court (Suprema Corte de Justicia de la Nación) confirmed the constitutionality of its year-old soda tax. In October of 2013, Mexican president Enrique Peña Nieto implemented a tax of one peso (US$.08) per liter on soda in response to the country’s rising obesity rate. Mexico’s Finance Ministry predicted the tax would raise US$1 billion in the first year, and the government promised a significant portion of the revenue to the construction of water fountains in public schools around the country.

Since the implementation of the soda tax in 2013, consumption dropped significantly. Soda consumption decreased by 10 percent in the first three months of 2014 and countered by a seven percent increase in consumption of other bottled beverages such as water and milk. In the first half of 2014, overall consumption decreased by 6.4 percent for Coca-Cola bottler FEMSA and 4.7 percent for Coca-Cola bottler Arca-Continental. However, the school water fountain project only received a third of the tax revenue originally apportioned. Despite this minor setback, the tax has been slowly reducing soda consumption.

When implementing a food tax to curb obesity rates, there are two potential methods for improving health outcomes. The first is to use a food tax to deter consumption of unhealthy foods. Generally, studies have shown that only high food taxes are successful in deterring consumption of unhealthy items. However, these taxes are often less politically feasible than moderate alternatives. Additionally, according to the National Bureau of Economic Research, the most recent study on food taxes has shown that nutrient-specific taxes better improve nutrition than product-specific taxes by eliminating unhealthy substitutes. When using high food taxes to deter consumption, either product-specific or nutrient-specific taxes can be used, but nutrient-specific taxes are shown to be more successful at influencing consumption patterns. The second method of taxation is to allocate the revenues from moderate taxes on unhealthy foods to fund obesity-prevention campaigns. This method reduces the concern of political feasibility posed by the previous method by implementing a more moderate tax, while still improving health outcomes. However, Mexico’s water fountain project demonstrates the risk of the reallocation tax revenues to other services. Both forms of taxation have the potential to curb obesity rates, but each method has its own trade-offs.

Tensions between the public health and the soda industry priorities pose substantial financial barriers to the enforcement of a soda tax. Throughout Mexico’s soda tax campaign, Michael Bloomberg donated US$10 million to promote the passage of the proposed law.  Bloomberg’s support of soda taxes began years ago as mayor of New York City, where he attempted to prohibit the sales of 16-ounce soda drinks in retail locations such as restaurants and movie theaters. However, this law was later repealed by court order. Bloomberg was also the largest donor towards the implementation of a soda tax in Berkeley, California in 2014. He donated US$657,000 to the campaign, which he argued was to level the playing field against the American Beverage Association (ABA). The ABA spent US$1.7 million in Berkley and US$7.7 million in San Francisco to denounce proposed soda taxes. According to the New York Times, Bloomberg chose not to invest in the campaign for a soda tax in San Francisco because of the supermajority required to pass such a bill, which he believed insurmountable considering the level of funding that the ABA allocates to anti-soda tax campaigns. In the last five years, the ABA alone has spent over US$100 million to squash more than twenty soda-tax proposals across the country. Though the passage of the soda tax in Berkley inaugurates the implementation of deterrent food taxes in the U.S., the required funding to counter the ad campaigns of the ABA calls into question the political and financial feasibility of the passage of such laws elsewhere in the U.S.

In both Mexico and the U.S., recent soda-tax movements have only begun or found success through the financial support and tutelage of Michael Bloomberg. Despite the aid that a nutrient tax could provide, through either the deterrence of consumption or the funding of obesity prevention campaigns, its feasibility on a federal level is questionable due to the current political and financial barriers.

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