The United States has subsidized sugar for 82 years. Like most federal subsidies our programs subsidize producers rather than consumers—the specific objective of the programs have been to raise sugar prices and it’s been effective. Americans pay $300 million per year to support the program. For more information on U. S. sugar subsidies see here.
Our sugar subsidies have had a number of consequences. For example, they have encouraged the development of the Everglades for sugar production with serious environmental consequences. They have made artificial sweeteners and corn syrup more competitive with sugar than would otherwise have been the case and there is some evidence that artificial sweeteners and high fructose corn syrup actually cause cravings for sweets. Ironically, recent studies have found that artificial sweeteners, specifically aspartame, may be counter-productive in weight loss.
The case for maintaining the sugar subsidies is quite weak. But they have new allies—people who want to raise the price of sugar for health reasons. The Washington Post remarks:
Soda taxes have become a weapon of choice among public-health advocates: In the past year alone, six U.S. cities and counties have begun targeting sugar intake by taxing sugary beverages.
But while there’s evidence that these measures reduce soda consumption, economists say there is a very simple way to more effectively reduce sugar and sweetener intake. In a nutshell, don’t tax the soda — tax the sugar it contains.
According to a new research report by the Urban Institute, such an approach would reduce both sugar consumption and consumer burden more than the volume taxes — which tax beverages by the fluid ounce — that are favored by cities and counties across the United States. What’s more, they might also encourage manufacturers to reformulate some high-sugar beverages.
“The whole point is this:†said Donald Marron, who directs economic policy initiatives at the Urban Institute. “If you’re going to have taxes on soda, and if those taxes are motivated by sugar, then the tax should be on the amount of sugar.â€
This is a wonderful example of conflicting objectives in public policies. My instinct is that the sugar subsidies should be abolished. But that would have the effect of lowering the prices of sugar and products that contain sugar.
If you’re going to tax sugar, again my instinct is that you shouldn’t favor fructose over sucrose or any other sweetener, natural or artificial. But that will rally considerably more opposition to enacting the tax.
And, of course, a tax on sweeteners would hurt consumers, intentionally so. It’s the mechanism that makes them an effective means of reducing consumption.
That’s why there’s a quandary about sugar.
What would the tax have to be to encourage reformulation? I’m thinking sugar is still a relatively small ingredient cost, that any likely tax would have no impact.
I also have mixed feelings on taxing sugar versus taxing sugar-based drinks. The main reason to discourage the drinks is that they constitute unnecessary calories and one can drink a lot of calories without feeling full at all. Maybe logic dictates similar treatment of all sugars to avoid unanticipated results, but I would prefer a simpler taxing system and not want complicated nutrient analysis that would be too expensive for new, small companies.
I presume the objective would be to discourage consumption rather than encourage reformulation. As I noted in the body of the post my instinct is towards eliminating subsidies, possibly accompanied by a public awareness program aimed at discouraging people from consuming sweetened drinks.
However, a rising body of evidence suggests that merely taxing sucrose could be counter-productive from a health standpoint.
The linked piece mentioned reformulation, and it’s very interesting to me whether the pigouvian tax is supposed to change business behavior or consumer. When aimed at business, it is in my view an attempt to act as a substitute for command-and-control regulation when the data to support such regulation is deficient.
One business approach I would be curious about is bundling. When I go to a local sandwich shop, or even a Subway, my sandwich might cost me $5, a bag of (five) chips $2, and a medium drink $2. I’m just working from memory, but I digest this information as a sandwich shop is a good place to buy sandwiches, not grocery items. OTOH, McDonalds or other hamburger chains will sell me a Big Mac, fries and a drink for $6, and the cost of individualizing the items may not be clear from the menu. Would state/local regulation prohibitting bundling of drinks with meals increase the perceived cost of non-water drinks enough that it would reduce their purchase?
The issue of fast food is a distinct and IMO interesting one. I think that fast food shops are themselves creatures of government policy. I’ve posted on this before.
Fast food came into its own as Baby Boomers entered the workforce. For about 20 years there was a ready stream of teenage Baby Boomers for whom working at McDonalds was their first experience with work.
But that ended. What replaced them was immigrants—some illegal but many legal, particularly beneficiaries of the diversity quota or family reunification. I don’t know if this is still the case but it used to be commonplace for a doc to buy one of more fast food franchises and then staff them with his “family”—notional relatives brought in from India, China, etc.
Would fast food shops have proliferated without a relatively low minimum wage and a steady stream of minimum wage employees?
Maybe its useless to think about calorie-savings at a fast food restaurant, but I actually think the cost of a Coke is already relatively high unless its being purchased by the case in a grocery store. To some extent, restaurants enjoy a captive consumer. Google suggests that I can buy a case of Coke for $7.28 (about 30 cents per can), but with restaurants charging more like $2.00 a serving, and whatever it may cost in an airport, amusement pork or sports arena, I wonder what kind of tax would make a significant change?
Free refills!
I’m skeptical government can do much and see sugar taxes and subsidies as largely counterproductive. But, knowing our politics, we are likely to get both.
” I wonder what kind of tax would make a significant change?”
That’s right. Restaraunts make a fortune on drinks, and not just liquor. Food not so much. It’s not price elastic.
All of the comments here are valid. But they illustrate the difficulty, if not folly, of regulating personal behavior, whether by taxes or other means. If I was a cynic I’d say sin taxes are popular with the pols because everyone is against sin, and behavior is only modestly modified, meaning a nice revenue stream. Look at cigarettes.
Public education is probably the best you can do. Look at cigarettes. But where do the men of zeal stop? Potato chips? Big Macs? Twinkies?
When do we start enforcing consumption of cruciferous vegetables? I’d be ok with eating them, I already love them, but I don’t think others would; and who is to tell us what to eat? Dr Gruber??
Eliminating the horrid sugar subsidy might be a good, practical public policy start. Then go from there.