Recently Mayor Michael Bloomberg learned that his Big Gulp ban had been blocked by a state Supreme Court judge for arbitrarily targeting these consumer goods without a legal rationale. Determined to combat the obesity epidemic, Bloomberg will no doubt appeal this decision. But he shouldn’t. Instead, he should look back at the history of alcohol prohibition and recognize that taxing sugar is a much better way to combat obesity than banning sugary beverages.
In 1791, Alexander Hamilton was trying to figure out how the nascent U.S. government could pay for its activities. The US government was quite lean in those early days, but not so lean it didn’t need a bit of revenue. Hamilton was trying to think of a fair and efficient way of collecting funds, when he had an aha moment: alcohol! “There appears to be no article” he wrote “…which is an object of more equal consumption throughout the U.S.”
Whether rich or poor, northern or southern, Hamilton realized that most men drank, meaning that an alcohol tax would be spread across the population relatively evenly, and wouldn’t require a complex bureaucracy to determine if everyone is paying their fair share. True, some people drank to excess and this tax would hurt them hard. But on the other hand, the tax might even help them. As Daniel Okrent points out in his book Last Call: “Hamilton even found social value in taxing alcohol: it might discourage people from drinking the stuff.”
Sin taxes, it turns out, have been part of the American fabric since the days when we first stitched thirteen states together into a unified country.
Of course, so too has been resistance to such taxes. Hamilton’s tax led to the Whiskey Rebellion, forcing George Washington to call out the militia and, indeed, to even mount his saddle and lead them—a president now but still a general!—to quell the rebellion.
The alcohol tax has had an up and down history in the United States ever since. Thomas Jefferson repealed the tax, as part of more general efforts to overturn most of Hamilton’s policies. But the tax kept returning over the years, first starting the war of 1812 and generally returning anytime the government needed more revenue. The alcohol tax came back with a vengeance during the Civil War, and this time it didn’t go away so quickly. According to Okrent: “t had become addictive. For most of the next thirty years… [it] provided at least 20% of all federal revenue, and in some years more than 40%.” The only larger source of revenue during those times? Tariffs.
In its first 100 or so years, the U.S. government paid its bills by discouraging both alcohol consumption and free trade. Strange behavior from the land of liberty, yes?
How did the U.S. manage to overcome its dependence on sin taxes and free trade destroying tariffs? By taxing income.
Income taxes had been declared unconstitutional in 1895 by the Supreme Court. It took the 16th Amendment, passed in 1913, to reinstate the income tax, an amendment embraced more enthusiastically by southern states than northern ones. Are you surprised by that? Keep in mind that most income was earned in the northern states at that time, so the tax worked out well for southern economic interests. But also remember that the southern United States was the home of many Baptists who were quite interested in prohibiting alcohol sales. And these prohibition enthusiasts realized that unless they found another source of government revenue, prohibition didn’t stand a chance.
I recognize that there are some anti-tax extremists out there, but most of us recognize that the government needs revenue from somewhere. We simply need to decide how much revenue we need and from where we will get it. I don’t want to debate the question of how much revenue we should be bringing in right now. That’s too contentious. Instead, I want to reflect on the question of where we should get such revenue. Specifically, I want to reflect on how much revenue we should get from sin taxes versus income taxes.
And I want to take a stand: We need more sin tax revenue. Specifically, we need to tax sugar. Why? Because we face an obesity epidemic that, by some estimates, will make my children’s generation the first to experience a shorter life expectancy than their parents. A sugar tax could help curb our nation’s appetite for unhealthy foods. The tax could even help pay for the healthcare costs associated with the obesity epidemic.
Critics on my left will no doubt complain that a sugar tax is regressive, and would take too large of a toll on low income populations. No doubt, if the only way we funded our government was on consumption taxes, this criticism would be quite devastating. But no one expects sugar taxes to eliminate our country’s needs for income taxes, which are progressive. More importantly, even though sugar taxes would hit low income communities harder than other communities, the obesity epidemic also hits those communities especially hard. Sugar taxes might end up being good for low income communities.
Critics of my right will no doubt counter that we don’t need any kind of new tax. But remember, gentle critics, a sugar tax might bring in enough revenue to lower income taxes. The history of alcohol taxation surely taught us that. Even more importantly, a sugar tax could dissuade eager legislators from banning unhealthy foods. Indeed, when New York City Mayor Michael Bloomberg proposed a ban on large sugary beverages, I was one of many critics who wondered why he targeted these particular sources of sugar rather than design a more sensible policy that targeted all sugar.
Prohibition didn’t work out so well for the anti-alcohol crowd. And so far, the Big Gulp ban hasn’t gone very well for Bloomberg. We need to leave people free to eat what they want to eat while still finding a way to combat the obesity epidemic.
We need to tax sugar.
**Previously posted on Forbes**