Last week, Congresswoman Rosa DeLauro (D-CT) introduced the SWEET ACT to the House of Representatives. The formal name: Sugar-Sweetened Beverages Tax Act of 2014. The gist of this proposed law, is a federal excise tax on specific types of sugary drinks.
More specifically, the tax will be 1 cent per teaspoon of added sugars in beverages such as soft drinks, sports drinks, energy drinks, and sweetened teas. A 12 ounce can of Coke, with 39 grams of sugar (about 9 teaspoons) would be taxed at 9 cents. A 12-pack will add $1.08 to the current $6.50 price, a 16% price increase. The tax is estimated to bring in $10 billion dollars worth of revenue that (hopefully) the government will spend on smart and effective programs to reduce obesity and diabetes.
The beverage industry is livid, stating that “taxes don’t make people healthy”. While that’s true, soft drinks do make people unhealthy, and account for over one third of the added sugars we consume every day. So if you want a simple tax on foods with added sugars, it makes sense to start with soft drinks as a category.
That said, is tax the best way to solve the problem?
From an economic perspective, higher prices will decrease consumption, that’s obvious. This has worked well with cigarettes. However, is a 16% price increase high enough to discourage soda lovers?
Furthermore, manufacturers will not see a per-unit decrease in revenue. Maybe a better solution is to tax manufacturers on their inputs. They would then have the option to raise prices, or, due to competitive pressures, leave prices as they are and slightly reduce their obscene profit margins. A side benefit may be a slightly lower number of soda commercials on TV.
However, an even better solution would be to end the silly subsidies for corn, which is the number one ingredient used in soft drink. Corn is so cheap that huge surpluses started piling up, and that’s when scientists invented a process to turn corn into high fructose corn syrup. The rest, as they say, is obesity history.
What is clear so far, is that “personal responsibility” and “freedom of choice” are nice ideals, but when it comes to actual consumer decision making, people ARE influenced by prices and ARE influenced by advertising. Increasing pricing and reducing ad exposure will decrease consumption, more than “education” ever will.
What do you think?