Looking to alcohol and soda for revenue is hardly unprecedented. We’ve been taxing booze since 1791; indeed, that tax was the first levied by our new federal government. Thirty states already tax sugary drinks, either with sales taxes or with excise taxes that support health or other programs. More than a dozen states and municipalities have attempted to impose taxes on soda in the past three years, although those proposals have been overwhelmed by aggressive industry opposition.
Now is the time to stand up to the soda and alcohol giants. Taxes on sugary drinks and updated taxes on alcoholic beverages would bring substantial revenue. For example, a tax of one cent per ounce on soda could generate close to $16 billion a year in new federal revenue, yielding a sizable chunk of the revenue that President Obama seeks as part of a grand bargain on taxes and spending. CBO’s 2008 modest revenue option of a federal tax of 3 cents per 12 ounces would raise $50 billion over ten years. Portions of the new revenue could be channeled to health care and health promotion programs, targeting many of the causes of obesity, diabetes, heart disease, and other diseases that burden our health-care system.
Alcohol taxes, which were last increased in 1991, the first major increase in 40 years, need a lot of basic retooling. For starters, the rates should be adjusted for inflation, at least since 1991, to avoid the steady dilution in their value. Next, Congress should equalize tax rates per unit of alcohol among beer, wine, and distilled spirits at the inflation-adjusted rate for alcohol in liquor. Today’s scheme, which taxes the alcohol in spirits at more than twice that in beer and wine, not only sacrifices needed revenue, but also ignores real-world alcohol-consumption patterns and the drink sources of alcohol harms. The CBO estimates that raising the spirits tax by about 19 percent to $16 per proof gallon and boosting the tax rates on beer and wine to that level would yield $59.9 billion over ten years (after adjusting for the loss of other taxes); indexing those revenues for inflation since 1991 would yield tens of billions more.
Higher prices on sugary drinks and booze would reduce consumption and lead to substantial health and safety benefits, including lower health-care costs from reduced sickness and deaths. Optimally, a portion of the funds would be used for programs to prevent and treat costly health problems and to promote healthy behaviors, particularly in the low-income and minority communities that suffer the greatest health burdens related to soda and alcohol. The revenues could also be used politically to moderate proposed higher income-tax rates and reduce or avoid the threatened elimination of popular tax breaks like the deductions for charitable contributions and home mortgages. The $200 billion or more available over 10 years would make a sizable contribution to deficit reduction and help legislators and the President back away from the fiscal cliff.
Jacobson is executive director, and George Hacker is senior policy advisor, at the Center for Science in the Public Interest.