‘Fat tax’ could help pay for health care reform: Report

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: Health care, Tax

The concept of taxing fattening foods has been raised again, this time by nonpartisan policy research organization Urban Institute, in a report that says the tax could help pay for health care reform.

More than one in three Americans is obese, and obesity-related diseases such as hypertension and diabetes cost over $200bn a year, half of which is covered by the taxpayer through Medicaid and Medicare, the report said. Its authors estimate that a ten percent tax on less healthy food items could generate $530bn over ten years – more than half the cost of reform – and as obesity rates decline, so would health care costs.

The ‘fat tax’ idea is not new, with the New York State debate over whether to tax sugared beverages at 18 percent in an effort to cut consumption one of the most well-publicized recent examples. At present 40 states impose “relatively modest” ​taxes on sugared beverages and snack foods.

The tobacco model

In this new report, entitled Reducing Obesity: Policy Strategies from the Tobacco Wars​, the authors take their cue from the tobacco industry, saying that increasing education and taxing tobacco products brought the proportion of US smokers down from 42.4 percent of the population in 1965 to less than 20 percent in 2007.

Comparisons between the food industry and the tobacco industry have been made before, notably in The Milbank Quarterly ​in March, but the focus in this latest report is not so much an attack on the food industry, rather a call to learn from the taxation strategies that worked to curb smoking.

The report mentions that other countries also differentiate between fatty or sugary foods and healthier foods in their tax systems. France, for example, levies a 19.6 percent tax on foods such as candy, chocolate and margarine, and a five percent tax on all other foods. Similarly, the UK applies its value-added tax (VAT) to fattening treats like ice cream, sugared beverages, alcohol and candy at 17.5 percent (temporarily lowered to 15 percent until the end of 2009).

Reducing obesity

The reason for taxing less healthy foods is twofold: To generate revenue and to reduce consumption. And there are indications that taxes do have an effect on obesity.

“According to a study comparing states that repealed taxes on soft drinks and snack foods with states that retained such taxes, the repealing states were 13 times more likely to have a high relative increase in obesity,”​ the report said.

The authors recognize that those on lower incomes would be disproportionately affected by a tax on less healthy foods, because they spend more as a proportion of their income on groceries, and because lower earners tend be more prone to obesity, part of which is due to dietary choices. To tackle this, they suggest that $180bn of the revenue raised by the tax could be used to subsidize fruit and vegetables, and to fund other ways of making healthy food available.

Expecting resistance

However, the authors recognize that imposing such a tax would be “an uphill, prolonged battle”.

“Policy changes needed to protect the public health will interfere with profits now enjoyed by many industries, which can be expected to fight against these reforms using every tool at their command,” ​they wrote.

And a ban on advertising fattening foods, as is in place in other countries, “would confront a likely constitutional challenge under the First Amendment’s freedom-of-speech clause.”

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