Is a Fat Tax Fair?

Fat Tax: Healthy Idea

by: Tali Fisher

Nobody would be surprised to hear that Americans, as a whole, are getting heavier, lazier and, as a result, sicker.  As fast food joints and convenient frozen dinners take the place of fresh, home-cooked meals, physical activity and exercise suffer in favor of television, video games and general lounging; the rising scale is directly related to declining health.   Statistics are unnecessary: it’s no secret that obesity – defined by a Body Mass Index (BMI) greater than 30 – increases your chances of developing diabetes, heart disease, high blood pressure, sleep apnea and countless other afflictions to which people of a normal weight (BMI between 18 and 25) are less susceptible.   This, of course, results in higher medical costs that ultimately fall onto the taxpayers.

A tax on fattening, nutritionally deficient food, while controversial, is an option that could reap several benefits, both to the individual and to American society as a whole.

By adding a nominal charge to foods that exceed determined levels of trans fats, sodium, or calories, indicates to the consumer that the particular item is not a healthful choice.  If the consumer decides the benefit (tastiness) is worth the risk (diabetes, heart disease, etc), he or she is exercising his or her free choice and can still purchase the food.  Critics of the so-called “fat tax” say increasing the price of unhealthy foods is a “Big Brother” tactic that is limiting public choice and telling consumers what they may or may not eat.  However, imposing a tax on fattening foods is not telling people they cannot eat it; instead, a tax presents them with a choice coupled with some awareness about the foods they are putting into their bodies. Healthy, natural and fresh foods with minimal processing are markedly more expensive than processed, packaged options. Those who choose to shell out the money make a choice as well, the same choice that the consumer about to buy a taxed bacon double cheeseburger is making. It is the food they want to eat, and they pay for it.

Critics of the tax further argue that taxing processed, fattening foods target poor populations, since these types of foods are cheaper and more widely available to low-income individuals.  Yet keeping the food cheap so that people can continue to eat it in no way solves the obesity problem, but only drives it into perpetuity, jeopardizing the health of the poor in the process. The cheaper the food, the more people will eat it. The more people will eat it, the fatter they will get.  While the billions of dollars in revenue expected from the tax is theoretically earmarked for healthcare intended to tackle obesity-related health problems, perhaps a portion of it could go towards bridging the gap in availability between cheap, unhealthy foods and nutritious, fresh, and wholesome products.  Instead of continuing encouragement to eat unhealthily despite the tax (i.e., “if you can afford to eat it, the government can afford to treat you”), we could start at the root of the problem: poor eating habits. Making healthy foods more available to more people while making unhealthy foods less of a clear choice will do more in the long run in improving the health of the population and changing the way they think about food.  As people open themselves up to a wider variety of foods and can afford to make better choices, their health will improve, and in turn put less stress on the medical system.  Arguably, investment in healthful eating education could forestall the shelling out of billions of dollars on diabetes treatment or heart surgery.

Undeniably, a fat tax would be unprecedented; the government has never before taxed the purchase of a product for individual consumption. Cigarettes are taxed, but it is presumably for the effect it has on those around the smoker, i.e., the externalities of cigarettes. Still, we don’t know that at least part of the tax, or part of the reasoning, is to protect the smoker himself, and the label on each box of cigarettes stating the dangers and consequences of smoking suggest that the government is concerned with the health of the smoker and not only the people around him.  The toxic nature of cigarettes allows for heavy regulation and taxation, and while regulating foods that individuals eat would truly be an imposition on their free choice, taxing the foods still makes consumption permissible, simply at a higher price.

It’s true that there are times when nothing can match the craving for a good, crisp bag of potato chips or a juicy hamburger with a big refreshing soda.  But those who make these choices too often are taking a large toll on their bodies, the health care system, and, most importantly, their sense of well-being and self-worth.  The fat tax is often misconstrued as capitalizing on the weak, hungry and poor, all in the name of making a buck. In reality, the proposed tax could give people the opportunity to reevaluate their lifestyle and the choices they make, to avoid direct regulation, and to promote healthy eating.  By putting our money towards the healthier option, at least part of the time, we take responsibility for our decisions.  By choosing the less-healthy choice, we can now be made, finally, to take responsibility for that too.

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Or Hard to Swallow?

by: Leonard Cleveland

The fact appears to be simple: America has an obesity problem.  Approximately 300,000 U.S. deaths a year are associated with obesity and being overweight, and the costs for treating obesity-related illnesses reached $147 billion in 2008 – nearly 10% of the total health care costs in the United States.  Taken together, it’s apparent why there is a recent push for a so-called “fat tax” – a 10% tax on fatty foods that would raise $500 billion over the next 10 years.  Despite the elegance of a fat tax incentivizing people to eat properly, the implications of taxing personal health decisions cannot be overlooked.

First, distributionally speaking, a tax on fatty foods would punish the poor disproportionately and would harm American families when they can least afford it.  Second, in the vein of similar tax schemes (e.g., cigarette and liquor levies), a tax on fatty foods may not go to fund health care, but could be used for other causes unrelated to obesity.  Beyond these political arguments lies the question whether or not a fat tax will actually work.

Advocates for the fat tax often point to the tobacco industry, yet the problem with comparing food to tobacco is twofold.  First, apart from the act of ingestion, fatty food and tobacco are not comparable. Taxing fatty foods would be over-inclusive if the motivation is to deter bad eating habits.  The nicotine and cyanide in a single cigarette is itself enough to trigger a slew of dangerous physiological reactions in a person, while it is difficult to distinguish the most dangerous part of a single cheese sandwich, or which part of its compositional makeup could be considered obesity-inducing, and therefore an appropriate target for tax.  More importantly, when a person pays a tax on a cigarette, he or she pays for the “sin” of harming others, not himself or herself.  And even this logic of harm prevention is tenuous, for while a tax on tobacco has generated billions of dollars in revenue, reports are inconclusive about whether or not such taxes actually dissuade smokers.  In fact, most cigarette retailers have merely slashed their cigarette prices by the cost of the tax, thereby negating any potential benefit.

Yet, it is often worthwhile to curb negative externalities.  When a single factory’s pollution is a whole nation’s problem, we tax the pollution. We tax tobacco.  We tax fishing vessels.  The list goes on, and it suggests that governments – ours in particular – use economic means to encourage the elimination of corporate externalities. The argument for taxing the consumer on fatty foods is that society – as a whole, in terms of health insurance premiums – bears the cost of poor nutritional decisions.  Taxing, so the argument goes, will require that person to bear his or her own costs.  However, taxing externalities is not a priori the most efficient solution.  For example, one doesn’t pay a tax for cutting down a tree on federal property; he goes to jail.  In general terms, there is a difference between taxation and regulation: the government does not tax personal health care choices; it regulates them.
Consider computer habits that cause bad posture, which will cost the health care system down the road.  This would be a negative externality on the health care system, and one of which an efficient system would rid itself.  Having eight children while on welfare or unprotected sex or choosing not to vaccinate children all carry high negative externalities.  Choosing to go on life support, or choosing not to, are personal medical decisions that affect society.  And yet, the government does not tax these decisions.  In fact, the government does not tax any personal health decision, notwithstanding its impact on society.  Why?  When the government wants to control health decisions, regulation is a preferable weapon of choice.  One is not permitted to kill himself when he is terminally ill and nor is one permitted to use non-approved drugs because the costs of “incentivizing” behavior are too high to be administered to by a consumer market.   Indeed, even examples of regulation are hard to come by, presumably because when it comes to health care choices, health-affirming patient decisions are often a simple function of being informed.

It comes down to a question of pragmatics: will a so-called fat tax have the intended consequence of lowering obesity costs?

First, it will give the impression of an overbearing government who is making a quick money-grab from the poorest population.  Second, if the cigarette tax serves any useful purpose, it shows the willingness of merchants to cut the price of a product so that a tax has no meaningful effect.  Third, individuals do not internalize the costs of their health care choices via a tax.  In other words, no, a fat tax will not work.  Though, there are other solutions. When regulation exists higher up the supply chain, the targeted activity is more easily snuffed out.  For example, by taking away a bar’s ability to allow smoking, people are forced to cut down on the habit.  Outlawing trans fats in a restaurant could help people to cut out a large source of fat without ever having to make a decision.  In the end, if the government is serious about lowering obesity costs, it should regulate food manufacturers.  The fact that the reason fueling this reluctance to regulate business (and, ostensibly, driving the push to tax consumers instead) is the five hundred billion dollars of potential revenue a fat tax offers to representatives proves precisely that the arguments for taxes on fatty foods derive not from a careful approach to healthy decision making, but rather from fiscal calculus – an approach that almost always ends in inefficiency.

edited by: Gabriel Zenon Tourek