Margolis: Behind the soda wars is an ample sugar subsidy

Rep. George Till. File photo by Josh Larkin

Not a household name these days, but there was a time when the mere mention of it could provoke a nasty spat, if not fisticuffs. Much of the controversy had to do with the racist joke that cost Butz his job or the tax evasion charge that sent him to the pokey for 30 days (of a five-year sentence, the rest suspended).

But none of that connects him to the soda wars. What does is a perfectly honorable policy decision Butz made in 1973. That’s when Butz, the Secretary of Agriculture, and his boss Richard Nixon (still a household name) turned U.S. agriculture policy on its head. From the 1930s to 1973, ag policy subsidized farmers, usually by restraining production and therefore keeping prices up.

Butz thought that was an awful idea, and with Nixon’s support, he shifted to a policy of subsidizing production. Plant “fence row to fence row,” Butz told farmers, also warning them to “get big or get out.”

So the farmers grew as much as they could, especially as much corn as they could. More corn means cheaper corn, which also means cheaper high fructose corn syrup, the sweetener used in almost all sodas and other sugar-sweetened beverages.

That abundance helps explain why those beverages are no more expensive (adjusting for inflation) than they were in 1973. Markets work. When a product is cheap, people lap it up at the stores. Then, in this case, they lap it up in their homes, offices, automobiles and even walking down the sidewalk. The average American now consumes 50 gallons of sugar-sweetened beverage a year, according to the American Heart Association.

More, according to a consensus of scientific opinion, than is good for them. “Americans consume about 250–300 more daily calories today than they did several decades ago, and nearly half of this increase reflects greater consumption of sugar-sweetened beverages,” according to a study by the Center for Health Policy Research at the University of California Los Angeles.

Like most simple stories, the one linking Butz to cheap sodas and their contribution to obesity and diabetes is perhaps too simple. Federal policy is not the only reason corn is so plentiful and inexpensive. Farmers now use better equipment and superior methods. Other countries, such as Brazil, grow far more corn than they did in the 1970s.

But federal policy is without doubt one of the reasons corn syrup and the drinks it flavors are so cheap and popular. This means that H.151, which would “impose an excise tax on sugar-sweetened beverages” is not, as some suggest, an attempt to insert government into the marketplace. When it comes to sodas, government has been inserting itself into the market place for generations. In effect, sugar-sweetened beverages are government-subsidized. That’s what helps make them so cheap.

The question is whether making them more expensive – a penny an ounce more expensive under the bill sponsored by Rep. George Till, a Jericho Democrat (and a doctor) – would lead to less consumption, and therefore to less obesity.

It would not, said Jim Harrison, president of the Vermont Grocers Association, which is leading the opposition to the legislation. He said there was no evidence that a higher price on sugar-sweetened beverages would ease obesity in Vermont, where 58 percent of adults were overweight and childhood obesity “increased by 42% between 1999 and 2007, from 8.3% to 11.8%,” according to the Rudd Center for Food Policy and Obesity at Yale.

At first glance, Harrison seemed to be saying that markets don’t work, an unusual argument for a business advocate. But then he explained that there was a 2009 study by George Mason University in Virginia showing that people in states which tax sugared drinks do not have significantly lower body-mass index counts than in the 16 states (including Vermont) which do not.

The Mercatus Center at George Mason did not do that study, but referred to a 2007 study done at the University of Chicago. That study’s results are presumably accurate, but unpersuasive. Most states tax sugared drinks simply by applying the regular state sales taxes to them. Those taxes are usually much lower than the penny-an-ounce tax excise tax proposed in H.151.

Besides, they are sales taxes paid at the cash register, not excise taxes paid by the wholesaler and posted on the product and on the shelves.

“The point of the excise tax is to raise the price of the product on the shelf” before the customer decides whether to buy it, said Roberta Friedman, the Rudd Center’s director of public policy. Because the purpose of this tax is less to raise revenue (it would be about $27 million a year in Vermont) than to discourage consumption, the excise tax should be more effective than a sales tax.

Meanwhile, a host of peer-reviewed studies (which the University of Chicago study was not) lend at least some support to the claim that the excise tax would cut consumption of sugar-sweetened drinks, potentially leading to less obesity, less diabetes, less heart disease, and lower health care costs.

Were a penny-an-ounce tax to be applied nationwide, one study at UCLA found, “the tax would reduce consumption of these beverages by 15 percent among adults ages 25–64. Over the period 2010–20, the tax was estimated to prevent 2.4 million diabetes person-years, 95,000 coronary heart events, 8,000 strokes, and 26,000 premature deaths, while avoiding more than $17 billion in medical costs.”

None of this means there is not a strong argument to be made against the bill, especially in Vermont, where many stores are close enough to other states to make some customers think about crossing the state line for cheaper sodas. While they’re there, they might well buy other goods that they would otherwise have bought in a Vermont store.

This is conjecture. Not that some Vermonters go to other states, especially low-tax New Hampshire, to shop. But that the beverage tax would create enough incentive to cause a significant increase in those cross-border trips. A recent poll taken by the Center for Rural Studies found that only 18 percent of Vermonters living near New Hampshire would cross the line to avoid paying the one-cent-an-ounce tax. But to a store owner in that part of the state, that 18 percent could be the difference between prosperity and trouble.

Furthermore, any excise tax is regressive. An affluent Vermonter might not notice another two or three bucks for a 12-pack of soda. For his low-income neighbor, it’s a burden.

Peter Sterling of the Vermont Campaign for Health Care Security, a leading backer of the bill, acknowledges the unfairness here, but notes that “the health impacts of obesity are regressive diseases,” more likely to affect lower-income people.

Almost every medical, dental, nursing, and public health organization in the state is strongly behind H.151. But it is not likely to pass, if only because Gov. Peter Shumlin does not favor it, at least not now. Throughout his first term, Shumlin has opposed almost anything that could remotely be called a tax increase, especially one that could be considered “broad-based,” a description which could apply here.

It is not impossible that the governor will change his mind this year, and should he win re-election, there may be ample reasons for him to look more kindly on the beverage tax next year. Assuming he gets his health care bill through the Legislature, he will be looking for every opportunity to cut health care costs and to increase revenues earmarked for health care. H.151 could do both.