Fat Tax debate continues with possible US tax on sweeteners

With the possibility of a US national tax on foods with high sweetener content, Iowa State University (ISU) economists have examined the impacts for food processors and consumers, and how such a tax could best be applied.

They claim that the ‘sin tax’ applied to sweetened goods on store shelves in the US is not the most efficient, effective method of lowering caloric intake from sweet food, would be more disruptive to consumers than necessary and could economically impact poorer economic groups the most.

Rather than assessing a tax on these sugary goods as they are taken through the grocery store checkout lines, the research suggests that a better way is to tax the food processers on the amount of caloric sweeteners, such as corn syrup and sugar added in processing before the product hits the shelves.

The economists, John Beghin* and Helen Jensen, both professors in the Department of Economics, are quick to point out that they are not advocating for or against any tax, but simply researching how and where a possible sweetener tax would be most effective.

“We are not saying ‘To resolve obesity, here is what you should do’,” said Beghin. “In that sense, we are not advocating anything. We are saying, ‘Given that you are considering a panoply of tax instruments, and there is a possibility of a soda tax, is there a better way to use that idea?’”

“This is motivated,” added Jensen, “by a lot of ideas out there that say we could tax sweetened products. We wanted to see what the effect of such a tax would be and, alternatively, if you imposed a tax on ingredients, what would be the effect of that.”

The research, published in the Journal Contemporary Economic Policy, shows that if the goal of a sin tax on sweeteners is to reduce calories consumed, lawmakers should consider taxing the inputs instead of the final product.

Assessing the tax at the processing stage allows food processors to reduce the amount of sweeteners they put into their products. Processors will also have incentives to use more of the lesser-taxed artificial sweeteners and less of the higher-taxed sweeteners that are heavy in sugary products.

These solutions would also raise the price at the store less than a direct tax on the end product, while reducing the calories attributable to the sweetener, according to the study.

“Taxing the processing ingredients makes more sense when compared with taxing the end product,” said Beghin. “You can abate the same number of calories without having consumers face such high prices.”

Any new tax on sweeteners, even the tax on food inputs proposed by the study, will cause prices to go up. One drawback of any tax on sweetened goods is the regressive nature of that tax. In economic terms, regressive taxes are those that impact poorer economic groups more than higher ones.

“Since much of these (sweeter) goods are consumed by poorer economic groups,” said Beghin, “you may be increasing the cost of calories for poor people.”

The study looks only at calories in food. The research does not make any claims about lowering obesity.

Obesity rates in the US has many factors and the amount of calories consumed is only one, say the economists.

“We are not looking at health aspects,” said Jensen. “Just the consumption of calories from sweetened goods and the disruption to the consumer.”

The findings of the study fit generally accepted economic principles that say if you want to change a given behaviour or economic decision, you should try to find a policy instrument that is closest to the behaviour or decision, according to Beghin.

As part of the study, the two collected data from both government and private sources on industrial food inputs.

“We spent quite a bit of time assembling a data set based on published data on what inputs the food industry uses,” said Jensen. “So we know that for all the different food sectors, how much sugar and corn syrup go into that industry group’s food processing. You’d be amazed to see how much sweetener goes into food processing.”

The findings echo Australia Food and Grocery Council (AFGC) Chief Executive Kate Carnell, who, commenting on Denmark’s saturated fat tax, earlier this year, said that imposing a tax on high fat, sugar and salt (HFSS) foods won’t change overweight and obesity levels in Australia.

“There is already a 10% tax on processed foods - the GST which came into effect in 2000,” said Carnell. “Australia has had a GST on processed foods - not on fresh foods or staples - for the past decade, yet obesity levels have continued to rise.

“Food taxes are regressive as they penalise people who can least afford it - fat taxes were also dismissed by last year’s Henry Tax Review.

“Taxing dairy products also does not make sense as people should be encouraged to eat more calcium in their diets rather than less,” said Carnell.

Australian food companies are already working with government, through the Food and Health Dialogue, to set saturated fat reduction targets for food product areas including in processed meats. By the end of 2013, leading manufacturers have agreed to reduce, by 10%, the saturated fat content of cooked/smoked sausages and luncheon meats (excluding salamis) that exceed 6.5 g of saturated fat per 100 g.

Carnell said Australia will only reverse the obesity trend with a comprehensive preventative health approach involving governments, industry, the community and individuals taking more responsibility for their personal health and the health of their families.

*Disclosure: Beghin has been a consultant on sugar matters for the US Government Accountability Office (2001), the Sweetener Users Association (2011), the American Enterprise Institute (2007), and the American Farm Bureau Federation (2004-5).