Tax Reform with a Side of Margarine

This is a follow up post to another tasty tidbit on the margarine tax.

Nineteenth-century tax policy was hardly as dry as plain toast. Congress returned to the margarine debate again and again for nearly 65 years.

Technological progress enabled the development of margarine, and the new, less expensive butter substitute quickly posed a risk to established dairy interests in the United States. That challenge led Congress to impose a tax on margarine to protect butter in 1886, but economic calamity and further technological change also led to the tax’s repeal more than 60 years later.

Congress took up the margarine issue several times in the intervening decades. In 1902, the 57th Congress (1901–1903) increased the tax to 10 cents per pound. During that debate, Representative William Cowherd of Missouri said the “only purpose that this bill can serve is to tax the man who to-day must earn his bread in the sweat of his face, and provide that hereafter he must eat that bread unbuttered.”

The effects of the laws against margarine continued for years. Congress prohibited yellow oleo because it looked too much like butter, so companies sold special food coloring to make white oleo look yellow, and special stamps showed the requisite taxes had been paid—some manufacturers incorporated those stamps directly into margarine’s marketing.

War, economic depression, and technological change altered margarine’s fate in the United States. Long considered an inferior substitute used only by those who could not afford butter, margarine’s popularity grew during the Great Depression and rationing during World War II. Despite its increasing use, the taxes remained. Changes in manufacturing processes provided the final blow to the oleomargarine tax. Political support for the tax weakened as margarine's ingredients expanded to include more farm crops. Midwestern congressional delegations, which represented both dairy and soybean producers especially, were no longer monolithically opposed to margarine.

As the coalition in favor of the tax weakened, Congress finally repealed all the additional taxes on margarine in 1950.

“I think the issue is quite clear-cut now,” Representative Cecil F. White of California said during the House debate. “Both sides have stated that it is definitely an economic fight. Each side is fighting for its own interest. Both sides have not denied that there are strong lobbies working for them. I think this issue has resolved itself into the same kind of a fight that labor and management frequently get into. When you come to a fight of that type, the only way to resolve it is in the public interest. That is just exactly what I ask in this instance, that this matter be decided so the consumers, the people of this Nation, are free to buy whatever product they want with their money.”

Sources: Geoffrey P. Miller, “Public Choice at the Dawn of the Special Interest State: The Story of Butter and Margarine,” California Law Review 77 (1989): 83–131; Thomas A. Bailey, “Congressional Opposition to Pure Food Legislation, 1879–1906,” American Journal of Sociology 36 (1930): 52–64; Ruth Dupré, “‘If It’s Yellow, It Must be Butter’: Margarine Regulation in North America Since 1886,” The Journal of Economic History 59 (1999): 353–371; Congressional Record, House, 81st Cong., 1 sess. (1 April 1949): 3725; U.S. Census Bureau, “Civilian Per Capita Consumption of Major Food Commodities,” Statistical Abstract of the United States, http://www.census.gov/compendia/statab/past_years.html (accessed 8 August 2012).

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