The information in this brief is intended to provide educational information on the cost effectiveness of SSB taxes.
Implementation of an increase of the state excise tax by either $0.02/ounce or $0.01/ounce of sugar-sweetened beverages (SSBs), administered by the West Virgina Department of Revenue and based on the current excise tax in West Virginia.1
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.2-4 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.5-6 The Dietary Guidelines for Americans, 20157 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.8-11 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.12
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 France and Mexico indicate that approximately the full amount of the excise tax is passed on to consumers.13 Short term studies for the local tax in Berkeley indicate less than complete pass-through. 14-16 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).17 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 $0.02/ounce increased excise tax would result in a 32.7% price increase; the $0.01/ounce increased excise tax in a 16.3% price increase. We assumed that the tax rate would be adjusted annually for inflation to maintain the 32.7% or 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 West Virginia.18 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. 19 Recent research concerning the Berkeley tax indicates a 21% reduction in SSB intake among low income populations. 15
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.11 Four large longitudinal studies in adults20-23 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. 24
The intervention reaches all youth and adults ages 2 years and older in West Virginia.
This policy change would involve an increase in the amount of state excise tax currently collected in West Virginia. We assume that increased costs above the current required costs to implement the tax will be incurred in the first year of implementation to account for changes to the amount of the tax, including labor costs for state tax department administrators to process tax statements and conduct audits. Businesses will also need to deal with increased costs in the first year in dealing with the change to the tax amount in preparing tax statements and participating in audits, which will require labor from private tax accountants. Cost information was drawn from estimates from West Virginia on implementation of its current excise taxes on soft drinks.11 The cost and benefit estimates do not include expected tax revenue.
The CHOICES microsimulation model for West Virginia 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 West Virginia 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 System, 25 NHANES, National Survey of Children’s Health, 26 the Medical Expenditure Panel Survey, and multiple 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.11
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 consumption 27 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 West Virginia, we estimated that the $0.02/ounce SSB increased excise tax would lead to an 15% reduction in diabetes incidence- an estimated 1,870 cases of diabetes prevented- over a one-year period once the tax reaches its full effect; the $0.01/ounce SSB increased excise tax would lead to an 8% reduction in diabetes incidencean estimated 960 cases of diabetes prevented- over this same time frame.
According to the Rudd Center Revenue Calculator for Sugar Sweetened Beverage Taxes 18, a $0.01/ounce excise tax in West Virginia could raise approximately $89 million in 2016. Based on calculations modeled from the Rudd Center Revenue Calculator for Sugar Sweetened Beverage Taxes18, we estimated a $0.02/ounce excise tax could raise approximately $128 million each year.
|Metric||$0.02/ounce Results||$0.01/ounce Results|
|Cost per Year with Obesity Prevented||Cost-saving||Cost-saving|
|Cost per Quality Adjusted Life Year (QALY) Gained||Cost-saving||Cost-saving|
|Cost per Case of Obesity Prevented||Cost-saving||Cost-saving|
|QALYs Gained||10,500 (3,160; 28,000)||5,330 (1,580; 14,400)|
|First Year Population Reach*||1.84 million||1.84 million|
|Decrease in 12-oz Serving of SSBs per Person in the First Year*||196.9 (114.2; 411.8)||98.1 (56.9; 205.3)|
|Cases of Obesity Prevented*||34,300 (10,700; 88,300)||17,700 (5,350; 47,100)|
|Years with Obesity Prevented||251,000 (78,500; 649,000)||130,000 (39,600; 342,000)|
|Life Years Gained||3,270 (970; 8,550)||1,670 (450; 4,620)|
|Deaths Averted*||960 (280; 2,500)||490 (140; 1,350)|
|Annual Intervention Cost||$29,600||$29,600|
|Net Cost (negative means savings)ᵻ||-$161 mill (-434; -$48.4 mill)||-$81.6 mill (-$220,000,000;
|Health Care Cost Savings per $1 Invested||$544 ($165; $1,460)||$275 ($82; $744)|
All metrics reported for the population over a 10-year period and discounted at 3% per year, unless otherwise noted.
ᵻ These costs include the difference between the cost to implement the intervention and the healthcare cost savings produced over 10 years.
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 indicate that households will spend less on SSBs after the tax goes into effect (an estimated $48 million per year less), providing disposable income 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.28-29 There is also substantial evidence that reductions in SSB consumption can also reduce dental caries. 30-31
There is opposition from the beverage industry, which spends over $4 billion/year nationwide on marketing.32 Public support for such taxes generally increases with earmarking for prevention activities.33 Relatively small beverage excise taxes are currently applied across many states. The proposed tax is likely to be sustainable if implemented based on history of tobacco excise taxes. There is potential for a shift in social norms of SSB consumption based on evidence from the tobacco control tax and regulatory efforts.34
We project that an increase in the state SSB excise tax by $0.02/ounce 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, with a lower impact for an increase of $0.01/ounce tax. 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.
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.