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06.09.12

Bloomberg Soda Ban Wins Few Fans, But Fat Tax May Fare Better

A British medical journal study shows that fat taxes may help counteract the obesity epidemic, writes Jacoba Urist—provided that they’re high enough and are combined with subsidies for healthy food.

Americans are fatter than ever—more than a third of adults are now clinically obese, according to the Centers for Disease Control and Prevention. It’s not just a health crisis; it’s an economic one, costing taxpayers almost $150 billion in 2008, according to the CDC. Third-party medical costs for obese people are $1,429 higher than for average-weight individuals, because obese people tend to have more health problems, including heart disease, high blood pressure, and diabetes.  

So what’s the best way to tackle our ever-expanding national waistline? Probably not by banning the sale of soda bottles larger than 16 ounces, as New York City Mayor Michael Bloomberg discovered last week. Within days of Bloomberg’s proposal, critics were calling this the worst of the nanny state.

But a study published in the British Medical Journal last month found that the key to reducing obesity may lie in a long-debated approach that has never fully taken hold in this country—the fat tax. The study, which considered the results of research from around the world, found that, to be effective, a fat tax should meet three requirements: It should be at least 20 percent, it must apply to a wide range of unhealthy foods (not just sugared soda, for example), and the government must simultaneously offer subsidies for vegetables and other healthy foods—literally giving us the carrot with the stick.  

The authors examined the most current studies on fat taxes, from natural experiments to controlled trials of price changes to modeling studies. They based their analysis on how well such taxes actually reduced consumption of unhealthy food, examining factors such as volume purchased, nutrient intake, weight loss, and annual deaths related to cardiovascular disease.  

Denmark, France, and Hungary have already introduced their own versions of a junk-food tax or sweetened-drink tax, or both, and British Prime Minister David Cameron, pointing to America as a cautionary tale, has publicly said that his country could follow suit with a fat tax to help Britain’s growing obesity problem. Denmark’s tax on saturated fats (including a 30 percent increase on butter) became law in 2011, and France’s soda tax came into force in 2012, so the verdict is still out on how well they’ll work.

But even if a fat tax is shown to be effective, how would it go over here? 

While an outright ban may have certain shortcomings, a broad tax on junk food might work better, because it allows people to choose to eat healthier all on their own. And taxes always raise revenue. The French soda tax is expected to generate revenue of around €280 million per year (PDF).

Kelly Brownell, who directs the Rudd Center for Food Policy and Obesity at Yale University, is a longtime proponent of the fat tax as a solution to the obesity epidemic. “The principle is simple,” he wrote in an email to The Daily Beast. “Cigarettes, alcohol, and some foods have negative consequences and hence high health-care costs, and taxes are a way of recovering some of these costs. Consumption goes down as taxes go up.”

But some experts warn that these so-called “sin taxes” can present a classic conflict of interest for the state, even if they always result in additional revenue.

“On the one hand, the state wants to reduce consumption. But on the other, what tends to happen is they become dependent on these sin-tax revenues,” said Andy Haile, a professor at the Elon School of Law.

There’s another problem with sin taxes, like levies on tobacco and junk food: they tend to be regressive, because poorer people spend more of their income on food relative to wealthier people.

“Cigarettes, alcohol, and some foods have negative consequences and hence high health -care costs, and taxes are a way of recovering some of these costs. Consumption goes down as taxes go up.”

But Brant Hellwig, a professor of taxation at Washington and Lee School of Law, said: “If the revenue from a junk-food tax were dedicated to expanding health-insurance coverage among low-income individuals, then what may appear to be a regressive tax on the revenue-collection side would be far less so when both sides of the equation are considered.”

Twenty-three states, including New York, already tax sugar-sweetened drinks and some other assorted junk foods. Compared with the tax on other items, the existing New York tax on soda, cookie, and candy is relatively small—only 4 percent—and it hasn’t caused much of a stir or, apparently, a difference in New Yorkers’ pants size. This isn’t surprising in light of the BMJ study, which calls for fat taxes five times as high in order to be effective.

At the end of the day, Americans may really want to give up that gigantic soda or fast food lunch—but they prefer to do it through the more gentle nudge of a food tax, rather than an outright ban.