Soda taxes are becoming every politicians “go-to” revenue source. Governor Patterson (D-NY) spearheaded an attempt to implement a tax on soda in New York State earlier this year. Despite his promise not to raise taxes on anyone making less than $250 thousand a year, President Obama supports imposing a federal soda tax, if necessary, to pay for his health care proposals.

Imposing a large tax on the middle class during difficult economic times is not good politics. But, politicians are trying to justify this tax not as a tax but as necessary “health policy”.

For years, public health activists have been waging a campaign against soda and junk food. This campaign has now merged with cash-starved politicians looking for new revenue sources to fill their expanding budget deficits. With grand illusions that they are St. Michael slaying the “obesity dragon”, the political class is exploiting the health crisis to justify sizable tax increases on the middle class.

Undoubtedly, there are reasons to be concerned about the obesity problem. The total number of obese people in the U.S. has risen 68% between 1995 and 2008 and today fully two-thirds of the U.S. population is either overweight or obese.

Soda taxes will not reduce the obesity problem, however. Claims that soda taxes will alleviate the obesity problem are both logically unsound and empirically false.

In advocating for soda taxes, proponents have clearly misapplied the basic theory of incentives. In the realm of economics, taxes are negative incentives. People attempt to avoid taxed activities—the higher the tax, the greater their attempt to avoid the activity. As with all negative incentives, no one can be sure how the avoidance will be carried out.

While imposing a tax on soda will undoubtedly discourage people from drinking soda, it’s not known what beverage the individual will consume as a substitute. It is possible that they will drink less soda and more water. In this case the tax would have encouraged this individual to consume fewer calories. However, it is also possible that the response will be consuming less soda but drinking other high calorie drinks instead.

Moreover, even if a person replaced their soda consumption with water it’s possible they could increase the total amount of calories consumed from sugary desserts or high fat foods thereby keeping the total calorie consumption constant, or perhaps even higher.

The endless substitution possibilities thwart the effectiveness of a soda tax. The policy’s fatal flaw is that a soda tax does not tax the actual problem policy makers want to discourage – obesity. Soda taxes do not change people’s incentives with respect to their total caloric intake, nor do soda taxes encourage individuals to exert more calories by exercising more. Continued...