Discussion of the Inherent Nature of the Sugar/Fat Tax

In recent years the question of whether or not society has a duty to the health of her citizens has arisen taking the form of the implementation of a ‘sin’ tax against unhealthy food and drink. The tax can typically take two forms: first, a flat fee assigned to a group of products (all sodas for example regardless of overall sugar content) or a progressive fee assigned to a given product based on sugar or fat content over a certain baseline amount. Most of these types of taxes fall into the former category. Not surprisingly regardless of category manufacturers and suppliers of products which would fall under this tax do not want it and incessantly lobby against implementation of such policy.

The principle argument made by these suppliers is that the populace should reject government implementing policy which creates favoritism among existing choices. Of course the suppliers use more buzz and emotional language like ‘keep the government from restricting your food freedom’ or ‘the government thinks you are too stupid to make sound nutritional decisions’.

The interesting thing about this mindset is that it is wrong. Government already constantly, through the use of various subsidies and taxes in a number of industries, create this ‘distortion of choice’ that food suppliers are so concerned about when talking about a fat tax, but could care less about when talking about oil subsidies. With regards to the ‘too stupid’ attack angle, with over 33% of the U.S. population obese and another 33% classified as overweight and the basic biochemical understanding that a significant portion of weight is determined by one’s energy balance, it can easily be argued that yes most people appear to be lacking in the ability to effectively manage their own nutrition.

Despite these realities food suppliers would counter-argue that unlike smoking and alcohol government still should not be involved with food consumption favoritism because it is an individual’s decision; whether or not an individual is obese does not affect society as second-hand smoke or drunk driving do, instead only the individual in question is affected. This argument is foolish because obesity rates certainly influence society largely via the economy through work productivity rates and healthcare costs. With Medicare and Medicaid participation in a percentage of these healthcare costs clearly it is in the prerogative of the government to act. While one obese individual may not provide any significant influence, numerous obese individuals do and numerous is the scenario that society is currently facing.

The final strategy that suppliers use to combat the fat/sugar tax is to use a form of divide and conquer. These suppliers cite that the supporters of these types of taxes come from one of two camps. The first camp encompasses individuals who genuinely want to make society healthier and have determined that one way to accomplish that goal is to increase the cost of less nutritious options. The second camp encompasses individuals, typically lawmakers (according to the suppliers), who are looking for additional revenue streams. Suppliers seek to create division between these two groups by citing that if people reduce consumption of their products due to the higher costs due to extra taxes, then the revenue stream anticipated by the second group will shrink. Basically suppliers try to make the argument that if one group gets what it wants the other group will not get want it wants.

The inherent logic of this proposal is flawed because there is no significant ‘investment’ cost in creating the tax. For example suppose person A invested in project A for 5 dollars after an analysis concludes that person A should receive 100 dollars from the project. Would person A regret investing if the return was only 35 dollars? Of course not; person A may be disappointed that the return was not what was originally anticipated, but to regret making an investment which results in a 30 dollar profit with little associated opportunity cost is foolish.

This situation is akin to a fat tax, there is little investment cost thus regardless of how much is acquired due to the probability of reduced consumption lowing actual revenues whatever revenue is acquired will still be meaningful. However, this analysis does demand that lawmakers look at this issue through a logical mindset, which may be asking too much based on the behavior of lawmakers in the past.

The supplier analysis conveniently excludes the savings that will develop on Medicare and Medicaid from healthier individuals having to take less medication due to chronic health problems. Also the concern that individuals will simply move from one unhealthy food item to another is only applicable under narrow product specific taxes. For example such behavior could be expected if a soda tax is implemented with students drinking more fruit juice (which is mostly sugar), energy drinks, coffee and water. However, if the tax is applied (either progressively or flatly) in a broad way in the way a sugar/fat tax should be this concern is mitigated.

There are two immediate moral concerns with a sugar/fat tax. One concern is that these types of taxes are inherently unfair to healthy individuals. Individuals who properly manage their weight and health are punished by such a policy if they ever wish to ‘reward’ themselves for completing a workout or some other accomplishment. It is the not the fault of these individuals that other individuals cannot maintain a healthy weight and yet they face the same penalty when purchasing certain foods.

Another concern is how ‘food deserts’ would respond to such policy. Regrettably there are still a number of areas in the United States where food choice is scarce. In most of these regions the majority of available food is of lower quality and nutritional value, foods that would be more likely to fall under these types of fat/sugar taxes. Thus in these areas such a tax would put undue burden on these individuals who do not have a viable choice to select a healthier dining option.

Another real problem with the sugar/fax tax is a lack of public support. The campaign of taxation demonization in general has heavily crippled any public support for taxes which may influence those respondents. In general support for taxes boils down to whether or not that tax will affect the particular individual usually regardless of what benefits are derived from it. Additional taxes on millionaires have drawn large public support because they do not affect most of the public; however, most polling data on sugar/fat taxes have revealed significant resistance to implementation.

Recall that relying on polling data to make any decision is stupid because polls almost never have large enough sample sizes to properly represent the public. Although polling data should not be trusted, it seems reasonable to suggest that general attitudes will demonstrate resistance to sugar/fat taxes generally based on consumption patterns and most people consume the targeted type(s) of products. Therefore, the large-scale application of these taxes is unlikely outside of strong government actors willing to go against ‘popular’ opinion and certain elements in the business community.

The ironic aspect of the sugar/fax tax debate is that unhealthy foods already have an inherent tax associated with their consumption, that being poorer health. However, most individuals do not have the foresight to associate numerous choices characterized with little consequence in the present has having a significant influence on the future until too late. Thus the shortening of lifespan due to obesity typically ‘sneaks’ up on a person more than anything and it is frequently eliminated through cognitive dissidence. While the psychological element of health is muted individually, the inherent near-term financial tax of these foods is masked by the lack of transparency and price separation in the healthcare insurance industry. Basically how insurance companies ‘score’ their customers through the underwriting process creates an environment where it is difficult to understand the significance of compounding food decisions.

For example when one applies for health insurance as an individual, they agree in principle to a given rate which can be changed after an ‘independent’ underwriting of the applying individual. This underwriting is undertaken to determine the financial ‘risks’ associated with insuring that particular individual. After the process, if the applicant is still acceptable for coverage, the applicant is quoted a final price for the policy which he/she can either accept or decline. However, over the course of this process the applicant is not given information to why any change was made (if one was made) in the premium payment rate. Not providing this information leaves the applicant wondering about the rationality of the change, due to weight, cholesterol, smoking, family history, etc.

One step forward from this concern would be if health insurance companies could provide a detailed ‘invoice’ of sorts analyzing what aspects of an individual’s health profile were influential in producing a given premium price. In addition a benchmark range list could be provided showing price addition/subtraction relative to other values for given health indicators.

For example suppose an applicant’s blood pressure is 150/110, a higher than recommended value. The invoice would state that such a blood pressure cost the applicant 45 dollars a month towards the overall premium. However, supplemental material in the invoice would indicate that if blood pressure were 120/80 instead the associated cost towards the premium from blood pressure would only be 29 dollars a month. Providing information in such a format would allow applicants to see in full detail how aspects of their health influenced the direct financial cost of purchasing health insurance. Note how this issue of transparency is different from the more popularly known push for transparency in the insurance industry where insurance companies need to reveal the rationality behind sudden changes in premiums for large groups of customers.

This system would also need to have significant divergence between different health indicators to be truly effective. For example if a healthy individual paid 1,000 dollars a year in health insurance costs and an obese individual paid 1,200 dollars a year it can be reasoned that the transparency of such a system will do little to drive the obese individual to change his/her eating habits, especially when that 200 dollars is spread over 12 months. Therefore, it is important that health insurance premiums, which have risen significantly in the last few decades, are lowered for healthier individuals.

It can be argued that creating this significant gap between non-obese and obese individuals is appropriate because it represents a risk-associated interest in the insurance industry as obese individuals have a higher probability of needing medical attention. Note that with the high costs associated with health insurance premiums, it is not advisable that health insurance companies raise premium prices for the obese, instead the decrease for non-obese individuals is appropriate to create a sufficient separation and incentive.

The transparency in underwriting method outlined above may draw criticism from the health insurance industry. Some may argue there is too much additional work required to create such ‘personalized’ invoices. Without associated genetic screening, which is not included in this invoice because individuals can do little to positively change their existing genetics, this argument is reaching. The bulk of the invoice is either based in a flat ranged price based on existing parameters that are created by the insurance companies which exist in almost a form letter format or information provided by the applicant that is scored anyways, thus any concern of ‘more work’ is unfounded (in theory). Basically the insurance company simply needs to make a master list and then apply it to all individuals.

Some may argue that the transparency opens up how different prices are offered to different races, ethnicities or sexes. This should not be a concern at all because either a company has scientific evidence to back treating a male with 140/100 blood pressure different from a woman with the same blood pressure or they are being bias and that bias should be brought to light. Finally some may argue that the transparency is unfair because it could expose the company to competition. Such a concern is insulting as an industry which cites capitalism as the reason it should be allowed to make millions of dollars in profit a year would deny one of the principle tenets of capitalism when it does not suit them.

A genuine concern about this method is the reaction of employers. What type of legal ramifications will exist, if any, when employers who still provide health insurance elect to fire certain individuals because of the additional costs those employees are adding to the company? Could people sue for discrimination or would that reason be countered by the fact that weight is a controllable element which is affecting the profit potential of the company in question?

The final element is a continuation in nutrition education must be undertaken so individuals realize what foods can be consumed frequently, what foods consumed on occasion and what foods should be eliminated from the diet. Obviously without the proper education linking certain unhealthy food options to an increased probability of gaining weight and perspective additional health problems such a transparency program in the health insurance industry would be less effective.

Overall while a sugar/fat tax looks to establish a direct means to reduce unhealthy food consumption, such policy has met with resistance from the general public and industry. One alternative option is to create more transparency in providing health insurance. Health insurance is a large financial investment and to see a direct comparison of how premium costs affect individuals of poor health vs. healthy individuals could provide significant incentive for an individual to become healthier. It stands to reason that this strategy may be superior to a sugar/fat tax (for those who have health insurance at least) because of the magnitude of the premium difference in a single setting vs. the ‘nickel and dime’ nature of the tax. A sugar/fat tax could be a useful element in the fight against obesity, but society needs to investigate other means as well because at this moment there is still no ‘silver’ bullet.