The Skinny on Taxing Fatty Foods

I.       Introduction

            In case you have not read a newspaper, surfed the internet, or been outside your home recently, there is an obesity epidemic in the United States.[1]  Search Google News for “’obesity epidemic’” and one will find about seven hundred stories in the last month.[2]  Not to dwell on the prevalence of obesity, but according to the Centers for Disease Control and Prevention (CDC) in 2005-2006 “more than one-third of adults, or seventy-two million people [in the United States] were obese;” a number which had “doubled among adults from 1980 to 2004” and which has not decreased since.[3]

They say the first step to solving a problem is admitting one has one; America we have a problem.  But simply admitting a problem exists does not necessarily mean it should be the government’s job to alleviate the problem.  Even if it was the government’s job to alleviate the problem, taxing unhealthy foods[4] may not be a possible or preferable solution.  To understand the situation it is helpful to briefly look at the history of “Pigouvian” taxes, that is, taxes levied to correct an oversupply of a good or service that has negative externalities, and then examine whether obesity is a good candidate to be attacked with such a tax.

II.    Pigouvian Taxes

Pigouvian taxes are used to correct markets when the consumer of a good does not pay the true cost of the good, which is to say, externalities exist.  An externality is simply a consequence of one’s economic activity that causes “another to benefit with our paying or suffer without compensation.”[5]

In the case of unhealthy food, the consumer pays for the good, its packaging, its marketing and many other things, but he does not pay for the additional health care costs that eating such foods levy on other tax payers, through publicly funded health insurance, or his coworkers, through increased insurance premiums.

III. Have Pigouvian Taxes Been Effective in the Past?

The most common example of a successful Pigouvian tax is cigarettes.  In 1965 42.5 percent of Americans smoked but by 2007 on 19.8 percent did.[6]  To be sure, Americans in 2000 have a better understanding of the health consequences of smoking.  As well, other public policies, such as banning smoking in public places and limiting advertising, make it impossible to say how much tax policy affected the decrease in smoking and how much other public policies did.  However, most people are comfortable saying that taxing cigarettes, at the very least, contributed to the decline in the number of people who smoke and how often the average smoker lights up.

Like the cause of the decline in smoking, the question of whether taxing unhealthy foods will be as effective as taxing cigarettes is complicated.  To judge the possible effectiveness of taxes one has to first define success.  One definition is increasing the health of American citizens.  A second definition is a more accurate allocation of the costs of eating unhealthy food.  These two definitions of success need not be mutually exclusive.

A. Healthier Citizens

If a healthier citizenry is what is sought the usefulness of taxing fatty foods is questionable.  A ten percent tax is associated with only a .22 decline in body mass index (BMI) within two years, though in twenty or thirty years a person’s BMI might decrease one to two points.[7]  It would be naïve to think the tax code could quickly affect something as fundamental as what Americans eat, how much Americans eat, and how frequently Americans eat.  In the case of cigarettes it took more than a generation to reduce the number of smokers from about forty percent to about twenty percent, but those changes occurred.  There is hope.

Additionally, as the Urban Institute study points out, there are important similarities and between cigarettes and food.  Some similarities include increased risk of chronic disease and premature death, as well as industry action including aggressive marketing campaigns and additives that trigger “hard-to-control cravings that increase consumption of fattening food, in some cases using the same neurological pathways involved with substance abuse and other classically addictive behaviors.”[8]  Conversely, the differences between cigarettes and fattening foods include the fact that some unhealthy foods do provide more than a trivial amount of nutrition and that exercise can reverse the overconsumption of unhealthy food.

Finally, food plays an immeasurable role in our overall health.  As the health care debate continues in Washington, some point out that insuring more people and doing so more efficiently, without changing what we put into our bodies will be a fruitless strategy if we seek to improve our health and slowing the rising cost of care.[9]

B.  Fair(er) Distribution of Health Care Costs Associated with Overweight and Obesity

A second measure of success for taxing unhealthy foods would be a fairer distribution of the cost of consuming such foods.  Because the added cost of health care may escape the cost of a Quarter Pounder with Cheese, some argue that it makes sense to levy a tax to reduce the gap between the “true” cost (that is, the cost of the burger and the increased cost of care) and the price on the menu.

For starters, overweight and obesity cost tax payers money, a lot of money.  The CDC estimated that in 1998 the cost of overweight and obesity to be between 51.5 and 78.5 billion dollars.[10]  The Urban Institute estimates tax payers directly pay one hundred billion dollars annually due to overweight and obesity.[11]  But there are indirect costs as well.  According to a recent study, more than a quarter of the per capita inflation adjusted rise in the cost of health care between 1987 and 2001 can be attributed to the obese.[12]  Furthermore, non-obese workers pay more than a quarter billion dollars extra in private insurance premiums because of their co-workers obesity.[13]  It seems that one who consumes more of a good, in this case healthcare, should be asked to pay his fair share.

IV.  Will a Tax on Unhealthy Foods Help Solve Either of these Problems?

Despite the fact that Americans weigh more than ever and the above suggestions that eating unhealthy foods are to blame for this outcome, the problem is not so simple.  For starters, whether a person exercises has an effect on his health.  Presumably a tri-athlete who eats fast food regularly does not pass health care costs on to his neighbors.  Additionally, it has been suggested that eating unhealthy foods is itself a symptom of a change in food culture in the United States (and some of these changes were precipitated by government intervention in the market in the first place).[14]  Another worry is the prevalence of “food deserts” which are “often urban residential areas with no grocery stores and where food-buying options are limited to fast food and convenience stores.”[15]  Finally, some reject the problem of overweight and obesity concluding that “our attitudes about fatness have much more to do with our concerns about social status, race, and sex than they do with health.[16]  By ignoring the many opportunities to stop the possible negative health and financial consequences between ingestion and outcome one would certainly be simplifying the problem.  But with a problem as complicated as eating habits some simplification may be necessary.

Despite the complexity of American lifestyles the government creating incentives for Americans to make better choices is not a bad idea.  A Pigouvian tax would not disallow unhealthy foods from being made, marketed, or consumed.  Rather taxing unhealthy foods would nudge people to make better choices about what to consume more frequently.  Furthermore, it is hard to argue that non-obese Americans should subsidize the diets of consumers of unhealthy foods through higher taxes and insurance premiums.  Taxing a Whopper would make its price more accurately reflect its true cost.

At some point everyone is responsible for his own choices and the outcomes they lead to.  But in the case of unhealthy food, one’s choices increase the costs to other people.  It only seems fair that we allocate those costs to the people who incur them.  Inviting Uncle Sam to the dinner table might seem like an overreaction, but obesity is an epidemic, and a better solution has yet to be offered.

 

[1] The Centers for Disease Control and Prevention define overweight as adults with Body Mass Index between 25.0-29.9 and obese as a BMI 30.0 and over.  For example, a man who is 5’9” tall would be in the “healthy weight” range if he weighed 125-168, “overweight” if he weighed 169-202, and “obese” if he weighed more than 202 lbs.  See Centers for Disease Control and Prevention, Defining Overweight and Obesity, Aug. 19, 2009, http://www.cdc.gov/obesity/defining.html.

[2] Google News, www.google.com (last visited Sept. 9, 2009) (using search term “obesity epidemic”).  The term “’obesity’” returned 10,946 results. Id.

[3] Centers for Disease Control and Prevention, Obesity Among Adults in the United States – No Statistically Significant Change Since 2003-2004 (2007),  http://www.cdc.gov/nchs/data/databriefs/db01.pdf.

[4] What constitutes “unhealthy foods” is beyond the scope of this article.  However, a number of policy proposals have been made including only taxing sugared drinks.  See Peter Moore, President Obama has a Health Plan for America, Men’s Health, Sept. 2009, available at http://www.menshealth.com/cda/article.do?site=MensHealth&channel=health&category=doctors.hospitals&conitem=72387ea369683210VgnVCM10000030281ea; see Heather Knight, Newsom Wants to Charge Stores that Sell Soda, San Francisco Chronicle, Sept. 18, 2009, available at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/17/MNF619OSF4.DTL.  A second option would be taxing foods which are below a certain level on the Rayner Scale – a model which balances a food’s nutritionally risk elements such as calories, fat, and sugar with its beneficial elements.  See Carolyn L. Englehard et al., Reducing Obesity: Policy Strategies from the Tobacco War 13 (Urban Institute 2009), available at http://www.urban.org/UploadedPDF/411926_reducing_obesity.pdf.  A third option would be using a something akin to the Rayner model, but not the Rayner model. Id.

[5] Black’s Law Dictionary (8th ed. 2004).

[6] Centers for Disease Control and Prevention, Trends in Current Cigarette Smoking Among High School Students and Adults, United States, 1965-2007, 2008,  http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/index.htm.

[7] Waist Banned, The Economist, Aug. 1, 2009.

[8] Englehard, supra note 4, at 10.

[9] Mike Pollan, Big Food vs. Big Insurance, N.Y. Times, Sept. 9, 2009, available at http://www.nytimes.com/2009/09/10/opinion/10pollan.html?pagewanted=2&_r=1.

[10] Centers for Disease Control and Prevention, Aggregate Medical Spending, in Billions of Dollars, Attributable to Overweight and Obesity, by Insurance States and Data Source, 1996-1998, 2003, http://www.cdc.gov/obesity/causes/economics.html.

[11] Englehard, supra note 4.

[12] Kenneth E. Thorpe et al., The Impact of Obesity on Rising Medical Spending, Health Affairs, 2004, at 481, available at http://content.healthaffairs.org/cgi/reprint/hlthaff.w4.480v1.

[13] Englehard, supra note 4, at 10.

[14] Mike Pollan, In Defense of Food: An Eaters Manifesto (Penguin Books 2009).

[15] Emily S. Achenbaum, Food Desert Seeks Relief, Chicago Tribune, Sept. 1, 2008, at C3.

[16] Eric J. Oliver, Fat Politics: The Real Story Behind America’s Obesity Epidemic 15 (Oxford University Press 2006).

 

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