A week ago my friend Steve Lamb, a former councilmember from the town of Altadena, came up with an idea that in addition to generating additional revenue for the state could very well create ancillary benefits that will over the course of time improve the health of Californians and improve revenues for California agriculture. Steve’s idea: tax the ubiquitous sweetener high fructose corn syrup (HFCS).
According to author Michael Pollan, the passage of the Nixon Farm Bill of 1973 began a chain events that had the effect of significantly increasing production and dropping the price of corn to a point where HFCS could be substituted for more expensive sugar in almost everything we find in our pantries today to include snack foods, ketchup, mustard, crackers, hot dogs, hams, and soft drinks. With sweetener so cheap, the Big Gulp and supersized sodas became possible.
Steve Mills of the Chicago Tribune recently wrote “according to the American Medical Association and numerous scientists and nutritionists, HFCS and sugar both contribute to increased risks of obesity, diabetes, heart disease and other illnesses. Although some studies have suggested the body metabolizes HFCS more slowly than it does sugar, experts say the bottom line for consumers is they should avoid both except in small amounts.” So why advocate a “sin tax” on HFCS and not sugar?
First, California contributes very little to the production of the 17.5 billion pounds of HFCS manufactured on an annual basis. However, each Californian consumes roughly 60 pounds of HFCS each year. A “sin tax” on HFCS would add to the state’s coffers without adversely affecting California industry.
Second, California may not produce HFCSs but California farmers do grow sugar beets. Sugar beet production in California has been in steady decline since 2005 and the culprit is the falling price of sugar. The tax on HFCS could increase demand for natural sugar and production of sugar beets.
Lastly, a tax on HFCS could lead to less sweetener consumption in California and a healthier citizenry. The supersized drink to go along with the supersized meal may no longer be economically viable.
As all the ingredients in food including HFCS are required by law to be listed on the product packaging, products containing HFCSs can be tracked by Stock Keeping Unit (SKU) number and a tax added at the point of sale. Granted, there might be some upfront work required to get the data from the consumer packaged goods industry on just how much HFCS is in each product. But all these values are known and the data can be mapped. So the big question left is just how much or at what rate of measure to tax at?
It is possible a forward-looking economist has already arrived at a tax rate that would be considered optimal from the perspective of supply and demand. But for the sake of argument let’s draft what a sin tax on HFCS would look like:
The price of HFCS tends to vary based on the grade but let’s say for our purpose it costs a beverage maker $0.21 (cents) a pound. Given that Californians consume almost 60 pounds a year of HFCS, a tax of $0.10 a pound of HFCS could generate close to $216,000,000 in new revenue. This additional revenue combined with the positive impact to California’s farmers and on our eating habits could make an HFCS sin tax the perfect tax for these fiscally challenging times. . . .