Many cities have tried soda taxes—special taxes on sugary drinks—as a means of fighting obesity and, at the same time, raising revenue for worthy causes, such as education, hospitals, or public health. Berkeley, CA, was among the first to institute such a tax. Philadelphia, Seattle, Chicago, and many others followed.

Soda taxes, like other “sin taxes” on alcohol or tobacco, are supposed to pay a double dividend—raise revenue and reduce harmful externalities. There is theoretical support for the concept, but in practice, soda taxes draw strong opposition. Bottlers and distributors hate soda taxes, as do consumers. Such opposition has now killed Chicago’s soda tax.

Despite purported public health benefits, many economists are skeptical of soda taxes. Among the reasons:

  • Soda taxes are regressive. The poor pay proportionately more of the tax since they consume proportionately more sugary beverages.
  • Some jurisdictions have linked soda tax revenue to specific expenditure categories, like education or public health—a practice that is generally considered to be poor tax policy.
  • Soda taxes are too narrow—if taxation of sugary drinks is justified, why not tax all sugar?

The bottom line: Soda taxes, at best, are an imperfect instrument of public policy. Many economists and tax policy experts will greet the demise of Chicago’s soda tax with cries of “Rest in peace!”

Follow this link for a more detailed discussion of the economics of a soda tax in slideshow format.