The information in this brief is intended to provide educational information on the cost-effectiveness of SSB taxes.
Implementation of a state excise tax of $0.01/ounce of sugar-sweetened beverages (SSBs) in Illinois, administered by the state department of revenue and based on proposals considered by federal, state, and local governments.1-4 This analysis does not include the separate $0.01/ounce tax on SSBs and diet beverages recently passed in Cook County.
SSBs include all beverages with added caloric sweeteners. The modeled excise tax does not apply to 100% juice, milk products, or artificially-sweetened beverages. Although SSB consumption has declined in recent years, children and adults in the U.S. consume twice as many calories from SSBs compared to 30 years ago.5-7 Randomized trials and longitudinal studies have linked SSB consumption to excess weight gain, diabetes, and cardiovascular disease. Consumption of SSBs increases the risk of chronic diseases through its impact on BMI and other mechanisms.8,9 The Dietary Guidelines for Americans, 201510 recommends that individuals reduce SSB intake in order to manage their body weight. Drawing on the success of tobacco taxation and decades of economic research, public health experts have called for higher taxes on SSBs and documented their likely impact.11-14 In 2009, the IOM recommended that local governments implement tax strategies to reduce consumption of “calorie-dense, nutrient-poor foods,” emphasizing SSBs as an apt target for taxation.15
Increased state excise tax linked to change in BMI through change in SSB price and consumption.
Impact of Tax on Price to Consumers
We assume 100% pass through of the tax over the ten years. Empirical studies in Mexico and France indicate that approximately the full amount of the excise tax is passed on to consumers. 16 Short term studies for the local tax in Berkeley indicate less than complete pass-through. 3,17,18 The expected percent increase in SSB price was estimated based on the average $0.059/ounce reported in a review of beverage demand elasticity (inflated to $0.0612 in 2014 dollars).19 The price per ounce in this study was based on a weighted average across stores, restaurants and other sources proportional to the source of consumed SSBs in NHANES 2009-2010. The price per ounce of SSBs purchased in stores was calculated using weighted averages of two-liter bottles, 12-can cases, and single-serve bottles or cans based on the distribution of package sizes estimated from 2010 Nielsen Homescan data. The $0.01/ounce excise tax would result in a 16.3% price increase. We assumed that the tax rate would be adjusted annually for inflation to maintain the 16.3% price increase throughout the ten-year modeling time frame.
SSB Consumption and Price Elasticity of Demand
We used regionally-adjusted estimates of total SSB consumption in 2015 published in the UCONN Rudd Center Revenue Calculator for Sugar-Sweetened Beverage Taxes to adjust national age, sex, and race/ethnicity-specific consumption data from NHANES 2005-2010 to estimate current SSB consumption levels in Illinois.20 Powell et al reviewed studies published 2007-2012 and estimated a mean own-price elasticity of demand for SSBs weighted by SSB category consumption shares of -1.21, ranging from -3.87 to -0.69. 21 Recent research concerning the Berkeley tax indicates a 21% reduction in SSB intake among low income populations. 17
Direct effect of change in SSB consumption on change in BMI
We conducted evidence reviews for impact of change in SSB intake on BMI, taking into account any dietary compensation.16 Four large longitudinal studies in adults22-25 of sufficient duration were identified. The relationship was modeled using a uniform distribution based on the range of the estimates of the effect of a one serving reduction on BMI (from 0.21 to 0.57). Among youth, a double-blind randomized controlled trial conducted over 18 months found that an additional 8 oz serving of SSBs led to a 1 kg greater weight gain. 26
The intervention reaches all youth and adults ages 2 years and older in Illinois.
The policy change will involve start up and ongoing labor costs for state tax department administrators. To implement the intervention, the state government will need to process tax statements and conduct audits. Businesses will also need to prepare tax statements and participate in audits, which will require labor from private tax accountants. Cost information was drawn from states with planned or implemented excise taxes on soft drinks.14 The cost and benefit estimates do not include expected tax revenue.
The CHOICES microsimulation model for Illinois was used to calculate the costs and effectiveness over ten years (2015–25). This is a stochastic, discrete-time, individual-level microsimulation model designed to simulate the experience of the Illinois population from 2015 to 2025. Cases of obesity prevented were calculated at the end of the model in 2025. The model uses data from: US Census, American Community Survey, Behavioral Risk Factor Surveillance System27, NHANES, National Survey of Children’s Health28, the Medical Expenditure Panel Survey, and multiple national longitudinal studies. We calculated uncertainty intervals using Monte Carlo simulations programmed in Java over one thousand iterations of the model for a population of one million simulated individuals scaled to the state population size.14
We estimated the impact of the tax-induced reduction in SSB intake on diabetes incidence for adults ages 18-79 years using a published meta-analysis of the relative risk of developing diabetes due to a one-serving change in SSB consumption29 as well as local estimates of diabetes. On average, each 8.5 oz serving of SSBs per day increases the risk of diabetes by 18%. In Illinois, we estimated that the proposed SSB excise tax would lead to a 9% reduction in diabetes incidence- an estimated 5,810 cases of diabetes prevented- over a one-year period once the tax reaches its full effect.
According to the Health Policy Center at the Institute for Health Research and Policy at the University of Illinois at Chicago 30, a $0.01/ounce excise tax in Illinois could raise approximately $561 million each year.
|Cost per Year with Obesity Prevented||Cost-saving|
|Cost per Quality Adjusted Life Year (QALY) Gained||Cost-saving|
|Cost per Case of Obesity Prevented||Cost-saving|
|QALYs Gained||33,300 (10,400; 89,400)|
|First Year Population Reach*||12.9 million|
|Decrease in 12-oz Servings of SSBs per Person in the First Year*||95.9 (56.4; 199.9)|
|Cases of Obesity Prevented*||116,000 (36,700; 310,000)|
|Years with Obesity Prevented||819,000 (263,000; 2.17 mill)|
|Life Years Gained||(2,660; 24,300)|
|Deaths Averted*||(800; 7,160)|
|Annual Intervention Cost||$2 million ($1.30; $2.70 million)|
|Net Cost (negative means savings)||-$733 million (-1.99; -$215 million)|
|Health Care Cost Savings per $1 Invested||$37.7 ($10.6; $112)|
All metrics reported for the population over a 10-year period and discounted at 3% per year, unless otherwise noted.
Concerns have been raised regarding the impact of the tax on households with low incomes. Because of the elasticity of -1.21, our analyses clearly indicates that households will spend less on SSBs after the tax goes into effect, providing disposable income for other purchases. In addition, we project that greater health benefits will accrue to low-income consumers who on average consume more SSBs than higher income consumers; the same is true for a number of racial and ethnic groups. Disparities in obesity outcomes should thus decrease following implementation of the proposed tax. In addition, revenue raised from an SSB tax can be reinvested in low income communities; for instance, in Berkeley, CA SSB tax revenue has been allocated for spending on school and community programs, several with a focus on low income or minority populations, to promote healthy eating, diabetes and obesity prevention.31,32
There is opposition from the beverage industry, which spends over $4 billion/year nationwide on marketing.33 Public support for such taxes generally increases with earmarking for prevention activities.34 Relatively small beverage excise taxes are currently applied across many states. The proposed tax is likely to be sustainable if implemented based on the history of tobacco excise taxes. There is potential for a shift in social norms of SSB consumption based on evidence from tobacco control tax and regulatory efforts.35
We project that the proposed SSB excise tax policy will prevent thousands of cases of childhood and adult obesity, prevent new cases of diabetes, increase healthy life years and save more in future health care costs than it costs to implement. Revenue from the tax can be used for education and health promotion efforts. Implementing the tax could also serve as a powerful social signal to reduce sugar consumption. The additional $0.01/ounce tax on SSBs and diet beverages passed in Cook County would result in an even greater impact on heath outcomes and health care cost savings for Cook County residents not modeled in this analysis.
Results prepared by the CHOICES project at the Harvard T.H. Chan School of Public Health: Gortmaker SL, Long MW, Ward ZJ, Giles CM, Barrett JL, Resch SC, Cradock AL. Funded by The JPB Foundation and Healthy Food America. Results are those of the authors and not the funders. For further information: contact firstname.lastname@example.org. Visit www.ChoicesProject.org