Aurora is one of the largest cities in Colorado. It is home, by virtue of aggressive annexation policies, to most of the Eastern suburbs on Denver. It is also a cauldron for an ongoing series of debates about local tax policy. One of those is a proposal to tax soda sold in the city.The academic literature and popular debate on taxation has talked a great deal about a fat tax as the new sin tax in the tradition of taxes on alcohol, tobacco and gambling.
Like other sin taxes, any fat tax would be regressive, but this is justified as a way to discourage unhealthy behavior. It comes in the context of a variety of proposals to address obesity, such as a proposal vetoed by the Governor this year to require that school vending machines offer healthy snacks.
Aurora sought a simpler fix than the academics have proposed, targeting just one culprit in the obesity “epidemic”, a tax of one cent on every soda can and bottle sold in the city which would have raised about $1.8 million a year.
Many states, but not Colorado, have deposit laws, that impose a five or ten cent surcharge on bottle or can sales that can be recovered if they are recycled, but an outright tax on soda was largely unprecedented. These laws were proposed to encourage recycling, but, of course, also impact soda and beer purchases.
The proposal has been dropped for now for further study. Such a small tax probably wouldn’t have much economic impact on soda consumption, something even its proponents admit, but would be a symbolic step. The difficulty local governments like Aurora face is that if the tax is too high, it will simply hurt local merchants because soda customers will go to neighboring municipalities, but if it is too low, it won’t raise much revenue and will not have much of an impact on obesity. The tendency for soda to be an impulse purchase mitigates this effect, but only a little.