Berkeley, California, has long been an epicenter for social progress in the United States. While Berkeleyans are known for their grassroots activism on issues pertaining to civil rights and the environment, they’re also not afraid to take on big corporations — especially when they believe corporate interests to be at odds with societal well-being.

In November 2014, Berkeley passed Measure D, becoming the first US city to institute a sugar-sweetened beverage (SSB) tax, otherwise known as a “soda tax.” The “Berkeley vs. Big Soda” ballot initiative garnered more than three-quarters of Berkeleyans’ support, voting into law a ¢1/ounce tax on beverages containing added sugar. “Berkeley has a proud history of setting nationwide trends, such as non-smoking sections in restaurants and bars, curb cuts for wheelchairs, curbside recycling, and public school food policies,” said Vicki Alexander, an activist who worked to pass Measure D, in an interview with Time. “We fully expect other communities to take on the soda industry and succeed.”

Soda and other sugar-sweetened beverages account for roughly 25% — the largest source — of added sugar in the American diet. While it’s common in nutrition research to find that the downstream health effects of any given food are either small or unclear, the impacts of added sugar on health are about as close as the field gets to consensus: sugar raises the risk of cardiovascular disease, diabetes, and obesity in a dose-response relationship. And we pay for this. Obesity — some fraction of which is directly attributable to excess calories in the form of added sugars — is estimated to cost the US health care system nearly $150 billion per year.

Econ 101 tells us when consumption of a good imposes costs on society, referred to as a “negative externality,” it introduces an inefficiency in the market (a “market failure”), which requires policy intervention to correct. Tobacco and alcohol taxes — widely accepted across the United States — are close examples. ¹ On the surface, the logic for taxing SSBs seems fairly straightforward: Eating too much sugar has social costs, which require policy intervention to reduce intake. In one estimate, a nation-wide penny-per-ounce SSB tax would result in health care cost savings of $45 billion over an average individual lifetime. 

But while many studies focusing on specific cities have found these taxes are effective in reducing sales and consumption of SSB products, we have limited evidence of their general effectiveness across the United States and, perhaps more importantly, their direct impacts on health. That’s in part because only a handful of American cities have adopted them. In fact, since the most recent SSB taxes were implemented in Seattle and San Francisco in 2018, many states have actually prevented local jurisdictions from voting on or implementing them. 

So what makes these taxes so controversial? Why haven’t they been implemented across more US cities? And why is all of this so hard to figure out? 

Soda taxes draw inspiration from a long list of goods subject to excise taxes. Noteworthy examples include cigarettes, alcohol, and carbon emissions. But compared to these, taxes on SSBs have long been considered among the most controversial, a point reflected in the vehement disagreements that crop up wherever they’re proposed. 

Critics of SSB taxes point out their regressive nature — lower-income consumers tend to spend more on soda and are thus disproportionately impacted. They also argue that individuals will simply find another route to satisfy their sugar fix (either through other untaxed products or by shopping across city borders) and that the “nanny-state” nature of these taxes impinges on individual autonomy. 

There are numerous studies addressing and, in many instances, refuting these points. ² I’d like to focus on a less discussed, yet very meaningful, set of controversies surrounding SSB taxes related to the fundamental economic reasoning behind them.

From a policy standpoint, a key consideration for most excise taxes is whether they actually reduce the negative externality they’re meant to correct. In the case of SSB taxes, that’s health care spending. And while excess added sugar intake has been linked to poor health outcomes — and costly health care expenditures as a result — it’s not clear whether each individual consumer of SSBs is placing an additional burden on the health care system. 

In public finance lingo, excise taxes used to address externalities include “first-best” taxes, which tax the externality directly, and “second-best” taxes when the externality cannot feasibly be taxed directly and thus a related product creating the externality is taxed instead. For example, carbon taxes are first-best taxes, while taxes on gasoline — or SSBs — are considered second-best. Just as the external cost on society from the pollutants in gasoline depends on the car it’s used in, the costs of sugar intake depends on who is drinking it. 

But a direct first-best tax on diet-related disease is neither possible nor desirable, since disease severity is often associated with genetic or other underlying traits. As a result, SSB taxes can’t perfectly target negative externality costs (in this case, government health care spending on diet-related diseases). 

Which foods to tax is another debate. Most taxes enacted on unhealthy food solely target SSBs, but countries including Mexico and Hungary have passed broader taxes on added sugar and processed foods as a whole. These sweeping taxes are more controversial, since many products that fall under taxation can still offer some nutritional benefits. (We all need a certain number of daily calories and other sources of nutrition to remain healthy, and so skeptics of these taxes point out that they may be causing inefficient distortions in consumption of more essential nutrients.) 

But on this issue, the case for taxes on SSBs exclusively is strong. The average American drinks the equivalent of half a coke in grams of sugar per day. Soda is the primary dietary source of empty (non-nutritional) calories. And it produces very little satiety, leading to high consumption (imagine drinking a Big Gulp of milk versus a Big Gulp of Coke).

A final controversy is more prosaic: Do SSB taxes even reduce soda consumption? Over the past several years, scattered research has suggested that SSB taxes have had “little impact on retail sales” in California and didn’t effectively reduce consumption in Philadelphia. But until recently, such studies have been narrow in focus and unable to explore the effectiveness of SSB taxes at broader geographic levels. 

Our recent study published in JAMA Health Forum earlier this year does offer some evidence of general effectiveness. But a quick history lesson on SSB tax legislation in the United States shows why it’s difficult to address this point. 

The Bay Area is currently home to four of the seven active local-level SSB excise taxes in the United States. ³ It may come as no surprise why the area has become the regional leader in targeting SSB consumption: It’s highly educated, unusually health conscious for American cities, and, as an extremely progressive area, sees a strong role for government in society. 

But since January 2018, when San Francisco and Seattle became the most recent cities to implement SSB taxes, no other California localities, nor any cities across the nation for that matter, have implemented new SSB tax policies. What gives? 

Politics has been a key obstacle. Since 2017, several large states, including those with large cities that currently have SSB taxes in places like California and Washington, have introduced bills to preempt further local-level taxes from being placed on voting ballots. Preemption takes place when higher levels of government limit lower levels from enacting legislation. The US federal airline smoking ban and anti-discrimination legislation are examples. 

When it comes to taxation specifically, there is a historical precedent for preemption efforts at the federal level. ⁴ But it has been increasingly used as a strategy by industry and trade organizations to limit the ability of local governments to pass legislation that promotes local public health. This playbook was largely developed by the tobacco and firearm industries in the 1980s and ’90s and has now been adopted by the beverage industry. Pro-preemption groups make several key arguments justifying its importance: the need for uniform regulations across a state, a desire to “protect” businesses and consumers from excessive regulation, and the fact that the US Constitution refers to states — and not local governments — as the appropriate entities to enact legislation. ⁵  

Since 2017, four states, including California, have passed preemptive laws to counter SSB taxes. Four other states (Illinois, New Mexico, Oregon, and Pennsylvania) rejected or withdrew such laws. The beverage industry has relied on unified messaging — for instance, “unfair taxes make groceries less affordable”; lobbying policy makers and even state governors directly through campaign contributions and donations; sponsoring ballot initiatives with language designed to confuse voters; ⁶ and using litigation as a threat. ⁷

One would be remiss not to recognize the (likely) underlying industry play here, which may be to squash local movements and prevent such policy momentum from spreading to state or national levels. But a growing body of evidence (and new methods) supporting the effectiveness of SSB taxes — while perhaps adding fuel to the preemption movement — also suggests these taxes are more generally effective than previously thought. 

For these taxes to be considered “effective,” policy-makers and the general public need an answer to the million dollar question: 

Do SSB taxes lead to improvements in diet-related health outcomes and reductions in associated health care costs in an economically efficient manner? 

To answer this, we need to answer several other questions first: Do SSB taxes actually increase prices of SSBs? Do those price increases lead to reductions in consumption? And finally, do people seek out other untaxed sugary products, or if they continue buying SSBs, do they purchase them from neighboring untaxed areas?

Let’s start with prices. Studies looking at smaller cities like Berkeley have found mixed results — which is one reason there’s been so much debate over SSB tax effectiveness. ⁸ But studies looking at larger US cities with SSB taxes (Oakland, Seattle, San Francisco, and Philadelphia) and cities with the highest tax levels (Boulder, Seattle, and Philadelphia) have found a range of robust price increases on SSB products after tax implementation. 

Our study, which examines Boulder, Philadelphia, Oakland, San Francisco, and Seattle, found a 33% increase in prices of SSBs across these five cities, translating to a tax pass-through rate of 92%, or the percentage of the tax reflected in the final shelf price (which is important in understanding how much of the tax burden is borne by consumers versus distributors of SSBs.) ⁹  

It’s worth pointing out potential causes for the mixed results seen in Berkeley. Much of this boils down to where researchers are looking. Studies that include a wide variety of locations where SSBs are sold tend to find significant price increases associated with the SSB tax. ^{10 11} However, studies that look at large chain stores have found lower price increases, or none at all. ^{12 13} This might be because Berkeley is a relatively small jurisdiction, so larger chain stores don’t bother modifying prices, which are typically set for a wider geographic region. 

Still, in most cases, it does look like SSB taxes lead to a price increase. This brings us to our next question: Do price increases cause people to buy fewer sugary drinks? While plenty of observers will say they don’t (e.g. Tamar Haspel), a large and growing body of evidence suggests that sales and consumption of these beverages fell significantly in response to implementation of SSB taxes and in particular fell more in areas that witnessed higher tax pass-through rates. 

Our best evidence here comes from sales data, since observing actual consumption is harder than observing sales, and studies measuring consumption are sometimes lower quality. A rigorous meta-analysis published in 2022 covering over 60 different studies found that SSB taxes led to a mean reduction in SSB sales of 15%. ¹⁴ Combined with price changes associated with these taxes, this corresponds to a demand elasticity of -1.59. The elasticity of demand measures the responsiveness of quantity demanded of a good to changes in its price: For every 1% increase in the price of SSBs, sales fall by 1.59%. 

Our five-city study found a 33% composite decrease in volume sales, with individual city estimates of volume decreases ranging from 19% to 47%. Combining these estimates with the price effects we find, we estimate that a 1% increase in prices of SSBs reduces their sales by 1%. 

While price increases appear to be the direct mechanism leading to reductions in purchases of SSBs, some of our work in Berkeley has found that SSB tax initiatives can be quite effective in reducing purchases through channels that don’t have anything to do with price, like social norms and information. ¹⁵ There was an extensive information campaign in the months leading up to the vote on the Berkeley proposition — the origin of “Berkeley vs. Big Soda.” Our study leveraged the unique rollout of the tax, which was passed in November 2014 but didn’t go into effect until March 2015. We found that on the UC Berkeley campus, purchases of regular soda products fell 10-20% from November 2014 to February 2015, compared with non-soda controls. In other words, the campaign was as effective as the tax at driving down consumption.

Finally, one of the biggest questions is whether people avoid SSB taxes by buying untaxed, sugar-filled products instead and/or hopping across city borders. The short answer is that they might to some extent, but not nearly enough to meaningfully offset the reductions in purchases in taxed jurisdictions. Studies in Oakland, Philadelphia, and Seattle found either limited or no substitution to sugary snacks in response to SSB taxes. ¹⁶ The strongest evidence supporting the existence of cross-border shopping behavior comes from Philadelphia, where a study found such shopping offset nearly half of the decreases found in purchases within the taxed jurisdiction. ¹⁷ Other studies documenting cross-border shopping effects find much smaller magnitudes of offsetting purchases, if any. ¹⁸ In our five-city study, we detected none. 

A critical reader, however, shouldn’t just take these findings at face value. Social scientists evaluating policy impacts are generally looking to estimate a causal effect, not just a correlation. 

The gold standard would of course be a randomized controlled trial (RCT), but it’s clearly not feasible to run an experiment like that in a democracy; only a causal-inference-loving dictator could pull off such a feat. So how do we trust SSB tax studies that claim to estimate causal effects? Existing studies measuring changes in prices and purchases in response to SSB taxes generally rely on two classes of methods: survey-based approaches and quasi-experimental approaches, otherwise known as natural experiments. 

Most social scientists would argue that natural experiments are better for telling us why things happened than survey-based approaches are because, like RCTs, they let us compare outcomes with a control group. It’s also much easier for a survey respondent to manipulate answers that may not reflect actual behaviors.

So how do natural experiment approaches look when evaluating SSB taxes? In general, they rely on measuring changes in actual purchases and prices of products in cities that implemented SSB taxes and in those that did not, post- versus pre-tax implementation. This general class of methods is what social scientists refer to as difference-in-differences (DID) approaches because they rely on two differences: taxed versus untaxed locations and post- versus pre-tax time periods. 

However, there have been meaningful recent developments within the DID literature suggesting that these conventional approaches may not be delivering the causal estimates we think they are, particularly when examining multiple locations implementing policies at different times. This is exactly what our paper sets out to correct by using synthetic control methods (SCM). 

Consider a setting with one city that implemented an SSB tax (the treated city) and numerous other cities that did not (the control cities). The SCM builds a “synthetic” control city using a weighted average of price and sales data, as well as other demographic and socioeconomic characteristics, from the available control cities so that the synthetic city mimics the treated city’s SSB prices and purchases (or any other outcomes of interest) in the time period before the SSB tax went into place. 

Our study used monthly retail scanner data on prices and purchases of more than 5,500 commonly sold SSB products from a national panel of 871 zip codes between January 2012 and February 2020. We used the SCM to build synthetic zip codes that matched those of each of the five cities that implemented an SSB tax during this timeframe: Boulder, Oakland, Philadelphia, San Francisco, and Seattle. ¹⁹  

So what does our study add to an already rich literature evaluating SSB taxes? To date, most of the SSB tax evaluation literature has focused on estimating impacts one single city at a time, and there has been very little work examining the composite effects of these taxes across multiple locations. This helps us learn how effective SSB taxes are in different regions with different demographic characteristics and generates stronger evidence as to whether these taxes might work at the state or even national level.

Returning to the million-dollar question: Do SSB taxes lead to improvements in diet-related health and reduce associated health care costs? 

Excise taxes seem to work at increasing prices and decreasing the sales and consumption of SSBs. But what about the link between changes in consumption of SSBs and improvements in health outcomes? After all, that is the primary goal of these taxes. And if these taxes deliver improvements in health, do they achieve this in a cost-effective way? 

Because changes in diet-related health outcomes take a long time to manifest at a societal level, most of the research to date relies on simulations. Both health outcomes simulations and cost-effectiveness analyses (CEAs), which estimate how much monetary savings these taxes could generate for society via reduced medical costs if implemented nationwide, suggest the potential for huge impacts. 

Given a hypothetical ¢1/ounce national SSB tax, impacts on societal cost savings with respect to health impacts alone range from $30 to $50 billion over the average American’s lifetime. Over the same time, revenues from such a tax could exceed $80 billion. Most existing CEA and health outcomes simulation studies use a 10-20% increase in prices (or reduction in consumption) as the benchmark for evaluating impacts on costs and health outcomes. Our study, which found a 33% increase in prices, suggests the possibility that the cost-savings could be even more. 

Researchers are still in the early stages of attempting to study the relationship between SSB taxes and observational data of actual health outcomes. The few existing studies examining this direct link find small but difficult to detect effects on diet-related outcomes like weight and BMI. Building this direct link presents a challenge because of the many confounding factors that are likely to be associated with the health outcomes resulting from SSB intake. However, as time passes and SSB taxes continue to exist in over 100 countries around the world, the picture of SSB tax impacts on societal diet-related health outcomes may become clearer.

For the time being, US SSB taxes are, in large part, a California story — and a Bay Area one at that. And despite a handful of other cities that have joined the Bay Area in passing SSB taxes, they are not representative of the nation at large. While evidence supporting the effectiveness of SSB taxes in generating healthier consumption behaviors in the United States continues to increase, it’s still difficult to make a general claim about how effective they would be across the country.

And it appears this is the push the beverage industry is trying to make. Local-level SSB taxes have stalled since 2018, primarily due to state-level preemption. In fact, California was by far the quickest state to adopt local-level SSB tax preemption: AB 1838 was introduced on June 24, 2018, and went into effect on June 28, 2018. Imagine moving at such a speed on other important policy issues. 

This may not spell the end for US SSB taxes, though. Advocates in the United States may be able to leverage an existing playbook to fight preemption, courtesy of the tobacco control community. Successful approaches have included expanding legal networks to help draft measures that could withstand preemption, media advocacy, and a national task force led by health organizations. This approach has led to the repeal of 10 of the 25 smoke-free preemption laws across US states. The flipside of this is that preemption repeal took an average of 11 years per bill. National legislation appears unlikely, at least in the short term, given the historically low levels of legislative productivity in Congress.

And finally, as seems to often be the case in this day and age, technology may offer a more direct, yet controversial, off-ramp for poor dietary choices. Specifically, GLP-1 drugs coming to market may change our thinking with respect to regulatory approaches. It’s early days in the evolution of appetite-altering drugs, but it could end up being more cost-effective to medicate ourselves rather than regulate ourselves.