Sugar tax won’t work
There is a growing body of evidence that excess consumption of sugar is responsible for the dramatic increase of obesity in America. Some feel that sugar in highly sweetened beverages, such as soda and some energy drinks, is to blame. So, it is no wonder that there is a move afoot to dramatically tax these beverages. One proposal in the Vermont Statehouse is to impose an excise tax of one cent per ounce of beverage. The hope is that the increased price will cause consumers to buy diet or less sugary drinks.
There are studies showing that Vermonters will change their behavior and that they prefer this tax to others. Studies asked consumers which drinks they would buy based on the assumption that tax would appear in the price on the shelf. But there is not a single study that asks merchants how they will respond.
The problem is that this tax it will not work as planned. Because it is an excise tax it is applied at the wholesale level. The merchant is under no obligation to pass the tax directly to the consumer. Instead, the tax will appear as an overhead expense — part of the cost of doing business — and the tax will be spread over all the products in the store. That will dramatically decrease the likelihood that the consumer will see a significant price difference between sugared and diet sodas. Another significant problem is that very large retailers, the big box stores, have a huge advantage here. They stock thousands of products and can spread the excise tax all around the store, while a small mom and pop store has a much smaller inventory and will have difficulty absorbing the cost. Do we really want to put our small village stores at such a competitive disadvantage? Proponents of the tax say that spreading the tax among other store products is just a threat, but the fact is that merchants already adjust the margins on different products while responding to consumer demand and according to their business plans.
Another argument advanced by sugar tax supporters is to make a comparison with the tax on cigarettes. But this comparison falls short. Cigarettes are known carcinogens and are regulated and taxed differently. The cigarette tax goes directly on the pack of cigarettes and can’t be easily avoided. Further, tobacco taxes have increased so dramatically during the past several decades that the price per pack has skyrocketed. No wonder consumption is down.
Concerning obesity, we should all note that we do not tax salt, a contributor to thirst. The answer — drink more soda or drink more beer in ever larger containers. And we do not tax fat. We do not tax junk food or prepackaged meals that usually contain large portions of salt, fat and sugar. And, we do not tax sedentary behavior, or video games or time in front of the TV. Instead, local producers of fresh local food are overwhelmed by the corporate advantage of huge multi-national corporations. To believe that we can tax sugary beverages in isolation of all other factors and expect a dramatic improvement in obesity and diabetes is quite a stretch.