Legal Commentary

A Tax on Sodas? Becker

By Gary Becker

The number of overweight children and adults has grown sharply since 1980. The explanation is usually partly based on the increased availability of sodas and fast foods that have many calories. Also emphasized is the growing number of leisure hours spent at sedentary activities, such as watching television and using computers and cell phones. To combat obesity, an article in the April 30, 2009 New England Journal of Medicine by Brownell and Frieden argues for a tax on sugared beverages. I agree with Posner that this is a bad idea.

From the data presented by the authors of that article, only a very high excise tax on sugared beverages might reduce calorie intake enough to significantly affect the number of overweight and obese children and adults. According to these authors, sugar-sweetened beverages now account for about 10 to 15% of total calorie intake. They also claim that a review of various studies indicates that a 10% increase in the price of beverages reduces consumption by about 8%. These assumptions imply that a tax on beverages that increases its price by 10%-that means a 10 cent tax on a can of soda that sells for about $1.00- would slightly reduce the intake of calories from sodas by 0.8% to 1.2%. Even this overstates the total effect on calorie consumption, given that consumers who like sugar would substitute toward cakes, candies, and fruit drinks that naturally have lots of sugar. The result of this tax on beverages would be at most a very small reduction in the intake of calories and sugar. Indeed, it is quite possible that since consumers do not only buy products on the basis of their sugar and calorie content, these substitutions away from beverages and toward sweets and other drinks induced by a tax on beverages could actually increase calorie and sugar consumption.

In addition, as Posner indicates, there is little reason to tax the many consumers of sodas and other sweetened beverages who do not become obese, and whose consumption does not cause any social problems. That is why the usual recommendation is not to tax all drinking, but only heavy drinking, or better still only the heavy drinkers who cause auto accidents and other harm to innocent persons. A similar approach to the problem of overweight individuals would not tax consumption of beverages or fast foods, but would directly tax excess weight. Such a tax would be unusual to say the least, but it could be implemented if desired.

To me, calculations showing the minor effects of moderate taxes on sugared beverages on weight suggest that such taxes would be only the opening salvo in an effort to tax fast foods and other foods with many calories. One justification given by the authors of the New England Journal of Medicine article for caloric taxes is that the growing rate of obesity is partly due to ignorance of consumers, especially children, about the harmful health consequences of consuming many calories. It is also alleged to be partly due to the inability of consumers to act on the information they have because they are alleged to lack self control in their eating habits. These authors also argue that consumers who eat too much and become overweight impose costs on taxpayers since much medical care is financed out of government tax revenues. I do not find these arguments persuasive.

As Posner indicates, children without enough parental guidance and supervision are more likely than adults to be ignorant of the health consequences of high calorie intake, and children are also less able to exercise self-control over their eating. Very much offsetting this, however, is that the negative health consequences of being overweight and even obese will generally be significantly lower for children than for adults. The reason is that aside from very extreme obesity, the really harmful effects to overweight children will not usually kick in for another 25 or more years when they are in their forties or older. However, one can reasonably expect sizable progress during the coming decades in the development of drugs, such as lipitor, that will reduce the health consequences of high cholesterol and excess weight for heart conditions, diabetes, and some cancers. From that perspective, perhaps even ignorant and impulsive children are not acting so stupidly by indulging themselves in their eating since the future will likely see the development of drugs that will alleviate many serious medical conditions.

To be sure, taxpayers will pay for much of the cost of the development and use of these new drugs. This brings us to the argument that excess weight imposes costs on others through the health payment system. Yet such a health payment "externality" argument is hard to use consistently. Consider a person who significantly shortens his life because of heavy smoking, and thereby reduces the amount of public spending on him through social security, and subsidized health care. Would those who advocate taxes on beverages and other foods because obese persons make use of publicly funded health benefits support a subsidy to smoking if smoking cuts the use of health care and social security benefits? Clearly not, and nor should they. The same logic implies skepticism toward arguments to tax sugared beverages because obese persons make greater use of the health care system.

Many doctors and others who advocate taxing sugared beverages and fast foods at heart do not believe that consumer taste for sugar and fast foods should be taken into account in devising public policy. Perhaps not, but they have to advance better arguments than they have done so far to justify policies that interfere with the exercise of these tastes and desires.

Full post as published by Becker-Posner Blog on May 24, 2009 (boomark / email).