Overconsumption of sugar is associated with a prevalence of noncommunicable diseases, like obesity and diabetes. Because of this public health risk, governments in 39 countries, from Spain to Sri Lanka, have a tax on sugar of some kind.
Gov. David Ige is proposing a bill introducing an excise tax of 2 cents per ounce on sugary and other sweetened beverages. However, if he is serious about taxing sugar, he should learn from the experiences of other governments.
I believe there are several issues with the current design of the tax that, if addressed, would make the tax more fair, effective and sensible. The first issue is its application on product volumes, not sugar content. The second issue is the fixed nature of the tax amount. The third issue is the narrow focus on beverages.
First, the tax should apply to sugar content rather than volume sold. Taxing volumes disproportionately affects people who, for whatever reason, prefer oversized drinks, like Big Gulps (30 oz.). Whereas people who prefer small drink sizes but consume similar volumes, i.e., two to three 12 oz. per day, would be less affected. Yet the difference is simply their preferences for drink sizes, which should not be the tax’s focus. The tax should instead apply to the amount of sugar per volume sold — for instance 2 cents per gram of sugar, as they have in the U.K.
Second, the current tax design assumes all beverages are equally sugary. This is obviously not true. A 16 oz. can of energy drink likely has more sugar than a 16 oz. bottle of regular cola. Under the current tax both products would receive the same tax amount since their volumes are equal. The tax should vary by sugar content in these products. Spain has a two-tiered approach where products below a threshold receive no tax, and those above it do, depending on their sugar content. In Hawaii, this could mean a tax of 2 cents per gram of sugar in beverages above 5g per 100 ml.
Finally, the current tax design ignores sugary foods. People with a sweet tooth sensitive to price increases will simply buy sugary foods as a substitute to satisfy their cravings, reducing the effectiveness of the tax. The other issue is hidden sugars and unhealthy food in general. Many common foods are high in sugar, too, yet they are ignored by the tax. Mexico taxes sugar-sweetened beverages and sugary foods using a so-called “junk food” tax. Hawaii should tax foods and beverages at 2 cents per gram of sugar per 100 ml or 100g in products with greater than 5g of sugar per 100 ml or 100g — a broad-based tax on the sugar content of food and beverages above a minimum threshold.
There are downsides no matter the design. Food and beverage prices would increase for consumers. Sales volumes, and thus sales revenues, for businesses in retail, distribution, and production of taxed products would decrease. Also such taxes are often accused of being regressive since the burden may fall on lower-income households.
These are legitimate but mitigatable risks. By exempting staple products — such as bread, milk and 100% fruit juice — inflationary pressure can be kept low. By phasing in the tax over several years, industry should have sufficient time to adapt, ideally by reformulating. And by guaranteeing tax proceeds go to health programs targeting low-income households, the benefits would go to those who bear the costs of it.
Many country’s governments have taxed sugar, alcohol and tobacco. Governor Ige should learn from their experiences and design a tax on sugar that makes sense.
Max Markrich is a development economist focused on impact measurement and sustainability; from Kailua, he currently resides in the Netherlands.
