Could a tax on junk food drive healthier choices?

I’m about to open a huge can of worms, but I’m pretty passionate about this idea, so here goes.

I think a “junk food” tax could help us deal with a major health epidemic.

The idea of taxing foods and drinks that have low nutritional value has been tossed around before, but the combination of cash-strapped state budgets, the obesity epidemic, and the growing evidence that sugary drinks are one of the key drivers of this epidemic may have provided for what some see as the perfect opportunity for this kind of policy to be considered.

Would it be effective? Is it fair?

(Full disclosure: I’m vice president of product development for Herbal Water, where we make organic herb-infused waters that have zero calories and no sugar or artificial ingredients. I’m also a pediatrician and have been promoting good nutrition and healthy lifestyle for many years.)

Could it work?

Price generally affects purchase decisions, and with the exception of luxury goods, higher price reduces consumption. In this respect, if a tax is high enough, sales of sugary beverages should decrease and there are indications that soda sales are very price sensitive.

Lessons from tobacco:
Junk food and soda are not the same as tobacco, but perhaps we can learn a lesson from the role of taxes on the cigarette sales. Many believe that taxation was one of the most effective tools available to policy makers to reduce smoking, and economic research shows that every 10 percent increase in the real price of cigarettes reduces overall cigarette consumption by approximately three to five percent, reduces the number of young-adult smokers by 3.5 percent, and reduces the number of kids who smoke by six or seven percent. Every single state that has significantly raised its cigarette tax has seen smoking go down sharply.

Lessons from other states:
Most states have general sales taxes which don’t apply to food for home consumption, but there are exceptions: Some states do have a small tax on soft drinks, candy or snack foods (that includes my home state of Pennsylvania, which taxes soft drinks unless they’re purchased with food stamps--can you believe that?).

A study in the American Journal of Preventive Medicine looked at the association between the presence of a soft drink/snack tax in the years 1991-1998 and the increase in obesity rates for those years at the state level. Adjusting for age, income, race on other variables, they found that states without a soft drink tax were more than four times as likely to have a high increase in obesity prevalence, and that states that repealed a soda/snack tax between 1991-1998 were more than 13 times more likely to see a high increase in obesity.

This data doesn’t prove that a tax reduces consumption—there can be other explanations: maybe states in which a tax policy could be passed are those in which social norms act against obesogenic behaviors anyway. But it is encouraging data.

The Yale Rudd Center cites several studies in a public policy brief, and finds that:

“Based on the best estimates to date of the responsiveness of demand for soft drinks to changes in price, a 10% tax could result in about an 8% reduction in consumption. The effects could be higher for heavy users of soft drinks.
Based on November 2008 price increase and volume sales information on Coca Cola and Pepsi sales in the U.S., demand for soda is “elastic” (-1.15) meaning that a 10% tax would reduce consumption by 11.5%.”

A tax on sugary drinks will certainly help balance state budgets—given the incredible popularity of these drinks, even a modest tax will bring in lots of much-needed revenue, which states propose to use for health insurance and other health initiatives.

Is it fair?

The main argument against the tax is its regressive nature: this tax will affect low-income people more than it would impact higher income households. Consumption of soda is highest in lower socioeconomic homes and minority groups.

It’s a valid argument.

On the other hand, low-income people can benefit most from reducing their intake of soda—the health problems caused by obesity fall disproportionately on the poor. Many also argue that the programs that these taxes will fund—be it health insurance coverage, wellness programs, anti-obesity initiatives or subsidies for healthy foods—will benefit low-income people the most.

The other argument often made, and with some passion, is that the state should stay out of our plate, and not try to dictate what we should be eating.

This one’s pretty easy to deflect. Policy decisions dictate food prices and availability all the time. One of the reasons processed foods and sweetened beverages are so cheap is because of subsidies—dictated by current public policies (and not a small amount of lobbying by special interest groups). Corn is subsidized while fresh produce isn’t. There’s always been politics in food industry, and I think it’s high time new policies start to serve the health and well- being of people, and not those of “big food”.

As I mentioned before, most states have a sales tax that excludes groceries and prescription drugs (yet is imposed on prepared foods). That, again, is a policy, and I assume that the reasoning behind it that food and medications are essentials. I find it hard to call sweetened beverages an essential—quite the contrary.

The price of sweetened beverages is artificially but also ridiculously low—it doesn’t include the external costs of consuming them. Obesity and its consequences cost society huge amounts of money in healthcare costs (paid mostly by Medicare and Medicaid), absence from work and reduced productivity. This should somehow be reflected in the price of these junk foods.

If people worry about the regressiveness of such a tax, or that soda drinkers will replace the sweet drink habit with another equally unhealthy one, why not consider coupling a junk food tax with a fresh produce subsidy? a tax will also create an economic incentive for companies to produce healthy foods. It’s just mind-boggling to see that the unhealthiest foods are the cheapest, and that the more you buy of them the less you pay per ounce.

I think the argument for and against a soda tax is an interesting one (and I’m looking forward to responses to this post). It’s clear that debating the possibilities is a great way to make us look more carefully at junk food and healthy food policies.

What do you think about junk-food taxes? Do you have a better name for them? Would love to hear your thoughtful opinions!

Dr. Ayala