Evidence from Household Scanner Data on the Association between Soda Taxes and Purchases Lisa M. Powell, PhD University of Illinois at Chicago Nutrition and Obesity Policy Research and Evaluation Network Meeting August 10 th, 2015

The economic framework assumes that individuals maximize utility (i.e., happiness) subject to time and budget constraints. Prices and wages Constraints  Budget  Time Idea is that the policy instrument changes relative costs or benefits which, in turn, affect behavior choices related to diet and activity. Equity considerations: i.e., food taxes - who benefits versus who bears the costs.  Health benefits – progressive  Tax burden – regressive Background: Economic Theory of Demand

Background: Trends in Soda Prices Source: Bureau of Labor Statistics, Author’s calculations.

State and local excise taxes on soda (i.e., soda taxes) discourage soda consumption by raising prices However, federal law routinely exempts soda from the state and local sales taxes for SNAP users Unintended, unhealthy incentives to consume soda are created for low-income SNAP users Evidence from Household Scanner Data Roles of SNAP Sales Tax Exemption and Soda Taxes in the Demand for Soda

Methods – Conceptual Framework

Annual information on the state, county, and local food and beverage sales tax rates effective as of July 1 of each year,  State sales taxes compiled through primary legal research using Lexis and Westlaw with telephone verification  County & muni sales taxes for all jurisdictions located in the 959 largest counties in the US (~90% US population covered) obtained through Internet research with telephone follow-up –Over 11,000 jurisdictions in the 959 counties –Pop-weighted local tax=local tax rates * %age county population –County-aggregated tax rate =∑pop. Weighted local rates ci  “Disfavored” tax rates compiled for each county-aggregated measure: –Population-weighted soda tax rate – food tax rate = disfavored soda tax rate (referred to DSTR on following slides) Methods – Tax Data

Combined tax data with detailed soda purchase records and household information obtained from AC Nielsen Homescan (National Consumer Panel)—3 rd quarter of each year, —cross-sectional data Constructed two household-aggregated measures:  Any soda purchasing  Volume of soda purchased (oz) Rich sets of controls that include: income, household size and composition, race/ethnicity, marital status, housing status, employment status, education, and county-level median household income. Methods – Household Scanner Data

Household purchases linked with state+county-aggregated tax rates using county geocodes where the household was located Multivariate, two-part models –Logit models predicted purchasing decision –Conditional OLS predicted volume purchased conditional on purchasing –Bootstrapped standard errors (500x) –Clustering on county Controlled for household and county level characteristics and year fixed effects Methods – Empirical Models

Household Soda Purchases and Disfavored Soda Tax Rates, All Households (N=158,937) Soda Purchasing Households only (N=127,667) Soda purchase status, prevalence per quarter 80.3%100% Soda purchase volume, ounces per quarter (1049.5) (1055.8) Disfavored soda tax rate 4.92 (3.36) 4.87 (3.36)

Impact of Disfavored Soda Tax Rate (DSTR) on Household Purchases, by household SNAP sales tax exemption status, Homescan National Consumer Panel Tax ElasticityN SNAP tax-exempt households ,476 Sales tax-paying households ***147,461 Low-income SNAP tax- exempt HH ,167 Low-income sales tax- paying HH ***13,647 All households ***158,937

Impact of SNAP Sales Tax Exemption on Soda Purchases by Disfavored Soda Tax Rate (DSTR), Homescan National Consumer Panel Full sample DSTR = 0.0% DSTR > 0.0% DSTR > 0.0% & ≤ 5.0% DSTR > 5.0% SNAP sales tax exemption Semi- Elasticity 0.089*** *** *** SE(0.011)(0.038)(0.025)(0.065)(0.026) N158,93737,312121,62518,905102,720

Soda taxes (disfavored soda sales taxes)  Reduce soda purchase by 3.3% (p<0.01) among tax-paying households when tax rate doubles (average DSTR: 4.9%)  Has zero impact on soda purchases among sales tax-exempt households (SNAP users)  Low-income households are more sensitive to soda taxes unless they are tax-exempt SNAP sales tax exemption  Associated with 12.2% (p<0.01) higher soda purchases among households located in jurisdictions with soda taxes  Has zero impact on soda purchases among households located in jurisdictions without soda taxes Conclusions

SNAP sales tax exemption is associated with higher soda purchases among SNAP users but only in jurisdictions with soda taxes (covering 65% of households in the sample) Eliminating the sales tax exemption for soda purchases with SNAP benefits has less to do with equity and more to do with restoring proper price incentives Need for better coordination of federal, state, and local regulations and policies for soda Policy Implications

Acknowledgements Co-authors: Jamie Chriqui, PhD and Roy Wada, PhD Research Supported by: National Institutes of Health, NIDDK. R01DK Mar – Feb Association between local and state sugar-sweetened beverage taxes, beverage purchasing patterns, and weight. Co-Investigator (Chriqui, PI).