Fans of a “Fat Tax” Will Be Saddened by the News From Denmark

(Photo: ebru)

The other day, Levitt and I participated in a brainstorming session on how to fight childhood obesity, sponsored by the Robert Wood Johnson Foundation. (FWIW, we recorded the event and will try to turn it into a podcast.)

One topic that got a lot of traction was a targeted tax on sugary drinks and fatty foods. (This is often called a “fat tax” but should not be confused with a tax on overweight people.) Many people in the session were in favor of the idea but a few were skeptical, primarily because such a tax will be tricky to implement well. One objection that I was surprised no one raised: the simple fact that taxpayers might hate the tax and rebel against it to the point where it becomes politically and economically impossible.

In support of the idea, one person reminded us that Denmark recently instituted a “fat tax” on  foods containing more than 2.3 percent of saturated fat.

Talk about bad timing! Writing in yesterday’s Wall Street Journal, Clemens Bomsdorf informs us that:

Danish lawmakers have killed a controversial “fat tax” one year after its implementation, after finding its negative effect on the economy and the strain it has put on small businesses far outweigh the health benefits. …

Products such as butter, oil, sausage, cheese and cream were subject to increases of as much as 9% immediately after the new tax was enacted.

“What made consumers upset was probably that an extra tax was put on a natural ingredient,” said Sinne Smed, a professor at the Institute of Food and Resource Economics.

The fat tax comes to an end after netting an estimated €170 million ($216 million) in 2012 in new revenue. Danish lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue. The lawmakers also decided on Saturday to reverse an earlier decision to create a sugar tax.

Does this mean the idea of a fat tax isn’t viable here? Hardly. But, regardless of your view of the issue itself, this is yet another  example of how long-term policy can be affected by the short-term state of the economy. New taxes are rarely popular but that is especially true when many of the world’s economies are still trying to climb out of a deep trough.

Fans of the idea should console themselves: in the years it will take to refine, experiment with, and wrestle over a U.S. fat tax policy, our economy will probably be booming again!

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  1. Baughman says:

    The US insurance system causes obesity. It’s too easy to be obese, with the associated high costs of medical care, because the obese person doesn’t fully internalize the cost of her obesity. In other words, she imposes an externality on the rest of us.

    The solution: internalize the externality. Make health insurance what it was intended to be: protection against catastrophic loss. High deductibles will make people more aware and more responsive to the costs they incur. Insurance premiums should be tied to waist size, much like they consider in the US life insurance market.

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    • Jens F! says:

      Denmark has universal health care, paid exclusively tax, with no deductable. As such, a fat-tax is a way of making obese people pay the cost for being obese.

      Hot debate. What do you think? Thumb up 13 Thumb down 12
    • Nil says:

      The obese (and smokers as well) have lower lifetime healthcare costs than healthy individuals. While an obese person might rack up healthcare costs sooner, a healthy individual racks up several years of much higher costs later on. The truly expensive health care cases are people who spend decades with various organs and body parts slowly failing and requiring more surgeries and more prescriptions, or those whose mind goes years before their body and who require 5 or 10 years of round the clock care. Those who are obese/smokers simply don’t tend live long enough to be nearly as expensive.

      The obese & smokers are more expensive to employers and themselves because they are more likely to require expensive treatment during their working lifespan. Because of that timing they pay more out of pocket costs than healthy individuals who are able to push their larger medical costs out into their retirement years when the rest of society is forced to pick up a bigger share.

      Health care costs are one major area where moral hazard is backwards. Living a healthy lifestyle will give you extra years of life, but everyone will die from something. The healthier you are the more medical procedures and the more years of nursing home living you can survive which usually costs a lot more money in the end.

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      • JesusFreak says:

        You make a lot of assertions there. Can you cite sources to back them?

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    • JAM says:

      I agree with your assertion to internalize the externality. The best way to accomplish this is the get the government out of our lives it many places it doesn’t belong and let the price signal help to guide our individual decisions.

      The government subsidizes and mandates health care options for many, distorting the price signal which can contribute to inefficient lifestyle choices. The government subsidizes food production of various types further distorting the price signal effecting decisions on what we put into our bodies.

      The best thing government can do is provide information and then get out of the way to let people weigh their own decisions.

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    • Hominid says:

      Hidden due to low comment rating. Click here to see.

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    • miriam says:

      Let’s see– fat people are viewed as less attractive, make less money, have trouble using equipment/ facilities for their normal weight peers. I’d say the cost is pretty internalized…
      I don’t see where having one’s metformin and knee replacement covered by insurance removes the disincentive to be overweight. I’ve heard a similar argument that there is no incentive to quit smoking since the cost of your COPD treatment and/ or lung cancer are covered by insurance– the fact that they do not suffer a monetary penalty for developing these conditions does not mean that these conditions aren’t fully “internalized”.

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      • baughman says:

        My neighbor is a doctor. We often talk about the economics of health care. He is fascinated with the fact that many of those with Type 2 diabetes could reverse their diabetes by dropping a few pounds. I think the number he quoted was 20lbs.

        But the majority of his patients are too stubborn to lose the 20lbs. As a result, they require frequent trips to the doctor and expensive insulin medicine. The true cost of hundreds of dollars per month.

        In a world with only catastrophic insurance (say 10k deductible/year), are you telling me that a few thousand dollars of insulin/treatment savings is insufficient to incentivize someone to hop on a treadmill, eat broccoli, and lose a trivial 20lbs? Think about this world. It’s a world in which individuals are accountable for their actions. No medicaid to fall back on…you can’t just quit your job, become income-poor, and qualify for medicaid and food stamps. So it’s 1.) pay thousands of dollars / year, 2.) die, or 2.) lose a few pounds. My money says people hop on that treadmill once the costs are internalized.

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  2. Michael says:

    One of the biggest problems is that the tax is flawed as it focuses not on sugar but on fat, nor does it distinguish between different kinds of fats. Some fats are good for you. Butter, bacon, coconut (very high in sat fat) these are all very healthy items. Why should they be taxed?

    Conversely sweets are awful for children’s health, as is corn, corn syrup, barley malt etc.

    The problem is that govts don’t want to target these because they are so economical, subsidised and have massive lobbying power and even your basic can of tomato soup would be taxed.

    I we want to protect children from obesity we need to first understand the real causes, these are not ‘fats’ (fat doesn’t make you fat) but sugar and corn syrup etc. As such any tax not focused on the real enemy (sugar) is a waste of time anyway.

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    • Stephen says:

      Hidden due to low comment rating. Click here to see.

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      • Michael says:

        Fat in itself doesn’t make you fat, overeating it will. (just as overeating brocoli will) Furthermore looking at fat from a purely calorific standpoint is over simplistic and misleading. You need to look at what happens to the calorie once ingested. Take your example above, 10 cals of fat from say coconut cream is completely different to 10 cals from a sugary drink.

        Gary Taubes is a nice source for this, calories do count of course but the type of calorie counts just as much. As of course does gut health, inflammation, insulin response etc.

        I’d be happy to test this with you. You take in 2500 cals from pasta, sugary drinks, sweets every day and I’ll take the same in from coconut, butter and bacon without exercise and at the end of the year we’ll see who has the six pack. And who looks like death.

        So no, healthy fats are good for you and they don’t make you fat. So go enjoy that bacon, butter, animal fat, coconut milk, heavy whipped cream and live your life to the full. Just hope that Govts the world over who have no idea about nutrition and health (hence how obese everyone is even though they go to the gym more than ever before and follow Govt health guidelines) trey to tax health foods on basic misunderstanding.

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      • Armando says:

        Gary Taubes? Seriously? His “research” has been shown to have 0 validity.

        Sugar doesn’t make you fat any more than eating fat does.

        It’s really quite simple – burn more than you eat. Then you will not get fat. Doesn’t matter where the calories come from (simply from a weight standpoint).

        Hot debate. What do you think? Thumb up 24 Thumb down 24
      • Nikki says:

        Surprise, surprise: the crowd is rooting for whoever says that the road to a six-pack is paved with bacon and zero exercise. It does appear that obesity isn’t about food.

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    • Clancy says:

      To everyone who has and will reply to this comment:

      I think you’ll find it’s a bit more complicated than that.

      Thumb up 3 Thumb down 5
      • Michael says:

        It certainly is more complicated and we could talk about food allergies, intolerance and all kinds of issues including economics and social but I was answering a question on fat counting more g than protein and therefore fat making one fat.

        I might have answered that LCD televisions contain more calories than a coffee machine and therefore by that logic LCD TVs make one fat but I didn’t want to be glib :)

        What isn’t at question however is that Govts need to focus on the real issues, and understand the difference between different types of fat, their relationship to heart disease (cholesterol for example which they seem to have no idea about) and focus on sugar.

        They have fallen into the trap (as have many) that a food item on a shelf labelled ‘low fat’ is healthier than full fat. A bag of sugar could be labelled as ‘Zero Fat’ but that doesn’t make it healthier than a coconut or a few rashers of bacon.

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    • tmeier says:

      My own experience is sweets incline you to over-eat. They leave you wanting more, I don’t know if the effect is psychological or physiological but I see it in myself and my family. It seems to only be sugar, that is, sugar from sugarcane which is the problem. Sweet fruits or honey don’t have the same effect.

      Thumb up 4 Thumb down 4
    • Scott says:

      Michael makes an excellent point. Fat has been demonized in this country for close to 4 decades. Prior to this, it was common knowledge that reducing sugars and starches resulted in weight loss. In fact, earlier cookbooks for diabetics recommended eating natural fats and vegetables as these do not cause spikes in blood sugar levels and hence insulin, the primary hormone responsible for fat storage. The American Diabetes Association creates a disservice to those most in need of its advice…it recommends carbs such as whole grains that cause blood sugar to spike.

      In fact, taxing fats sends the wrong message. If you are not eating fat (healthy, natural saturated fats such as those found in coconut oil, butter, bacon, meats, fish, etc) then it is common to replace those calories with obesity causing carbs.

      If you want to encourage eating that will reduce obesity, policy needs to focus on the cause of obesity. It is not necessarily overeating, it is eating food that causes fat storage in the body. Those foods are carbs such as sugars and starches. Natural saturated fat is not the cause.

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    • Elliot says:

      Taxing sugar would make more economical sense if the government does not intend to fight obesity. Sugar is vey prevalent and more addictive than fat. Even diet soda can cause someone to crave sugar. So he’ll need sugar to stave off withdrawal from the substance he’s been deprived of. Demand for sugar, like drugs and booze, is interminable

      Thumb up 3 Thumb down 1
  3. Joe says:

    Crossing my fingers for that podcast.

    Thumb up 2 Thumb down 3
  4. David says:

    The line that jumps out at me is: “Danish lawmakers will slightly raise income taxes and reduce personal tax deductions to offset the lost revenue.”

    So was the point of the tax to encourage better eating habits, or to get scrounge for money by going after a “fat target” that was thought to be socially acceptable to attack? If the tax does work to modify behavior, then the tax revenues will drop over time (as well as income tax on profits from the fat producers and sellers), and if they’ve gotten used to that money, then either the rate goes up, or there’s a new target, and the cycle continues.

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    • TCB MD says:

      There are a few core issues:

      1) People are fat because there’s currently ahuge profit motive in both the production and sale of calories.
      2) From an evolutionary standpoint humans NEVER had abundant, easy to reach calories. High fat – you had to catch some creature swimming in the ocean. High sugar – in a tree or protected by bees. We are programmed to consume as many of these high quality calories as possible but that was for an environment very different from our current obesigenic one.
      3) Scientist (yes I’m one) are wrong all the time, but that doesn’t justify the nonsense perpetrated by quacks and corporations. Margarine over butter made sense until the discovery of the health consequences of trans fat. But the scientific truths are always more complicated than what the media or general public understand. In fact, nature even makes certain trans fats (milk, avocado, meat) that are GOOD for you (promote healthier lipid profiles and lean muscle mass) but that’s a hard message to convey to a fairly science ignorant population.
      4) Vegetable oil is another generic term of ignorance. There’s a huge difference between corn/soybean versus olive. Not to mention our exceptional seed oils (flax/safflower/canola) but the government SUBSIDIZES the production of corn/soybean (bad oils).
      5) Taxing simple sugars and unhealthy fats isn’t a nanny state protecting us from ourselves. It would be government protecting us from a government-industrial complex (decades in the making), that NEEDS people to consume unhealthy foods to support profits. The same people professing limited government, personal responsibility tripe line up every few years to reauthorize the Farm Bill.

      Thumb up 3 Thumb down 1
  5. Mike B says:

    A fat tax should not be intended to prevent obesity,but to societal cost of obesity. It is never in government’s best interest to go down the nanny state route to protect people from their own choices, however the government should seek to recoup the societal costs of personal choices. If that cost recover helps make people make better choices then so much the better.

    Thumb up 5 Thumb down 6
    • TexCIS says:

      If it is costing “the government” for the poor choices, then it has already gone the “nanny state” route by paying for other people’s poor choices. This state is a nanny who has spoiled the children by letting them eat anything they want, get fat, and make the “parents” pay the cost. In this case the “parents” are the people in society who are working to pay the bills and are making the right health care choices to not get obese and sick.

      Any time a parent disciplines a child, it is “unpopular,” and obese people don’t want the discipline of paying their correct share of health insurance. As long as they cry long and hard enough about it . . . the “parents” will keep paying for their poor choices. Although in this case, the “parents” may not have a choice about it, because the kids can vote on it.

      Kind of makes the responsible citizens into slaves of the irresponsible, doesn’t it?

      Thumb up 8 Thumb down 9
  6. Dani says:

    Hidden due to low comment rating. Click here to see.

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    • Michael says:

      :) Tell me how butter and bacon cause heart disease? Let me quickly preempt that by assuming you’re going to talk about saturated fats and cholesterol. If so….

      It’s not true. Most people suffering heart attacks have low cholesterol. I could point you to plenty of sources but this is a decent one http://newsroom.ucla.edu/portal/ucla/majority-of-hospitalized-heart-75668.aspx

      This is a very interesting article from a highly renowned heart surgeon on the matter, definitely worth reading:

      http://www.sott.net/article/242516-Heart-Surgeon-Speaks-Out-On-What-Really-Causes-Heart-Disease

      People like chris Kresser can give you plenty of info on this. http://chriskresser.com/heartdisease

      Robb Wolf is another source http://robbwolf.com/2009/10/29/cholesterol-we-are-dumb/

      If you’re not talking about cholesterol and high saturated fats causing heart disease and there’s another method then sorry for the above and go ahead, I’ll try and answer that.

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    • Denny says:

      Butter was thought to be unhealthy because of all the saturated fats, so for the last few decades we were encouraged to switch to margarine/vegetable oils. Did the people who switched get healthier? No, they were more likely to have heart disease. A few studies later, it turns out that margarine and vegetable oils contain trans fats, which are much worse than saturated fats. People would have been healthier sticking with butter (in moderation). The case againt saturated fat is far from proven anyway.

      I wouldn’t say butter and bacon should be the cornerstones of any diet, but they’re not completely unhealthy foods without any benefits. They can have their place in the right diet. All these “evil” foods can have a place in people’s diets if they control, most importantly, for calories. The real problem – worse than fat, sugar, etc. – is people aren’t controlling their calorie intake.

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      • Michael says:

        I’d agree with most of that, I didn’t say butter or bacon should be a cornerstone but certainly good fats should be, whether you get these from avocados, coconut, bacon, ghee, butter etc doesn’t really matter.

        The problem is that as you say, for years butter etc was demonised and this has had an effect on people attitudes to fat. Same with bacon. Fat = bad. low fat = good. It’s not true and it’s dangerous.

        So now people still believe that eating butter/bacon will lead to heart attacks but eating margarine is healthy when in fact the opposite is true.

        If you want low body fat and to be healthy then keep eating fat and stay away from comedy products like margarine :)

        (and refined/processed nonsense)

        Thumb up 6 Thumb down 4
      • James says:

        The problem isn’t really the butter & bacon, it’s eating large quantities of them, and not doing enough physical exercise (farm labor, for instance) to burn the fats.

        Thumb up 5 Thumb down 5
    • Scott says:

      Michael again is correct. Bacon and butter are not causes of heart disease. There are plenty of solid scientific studies (randomized controlled trials, not observational ones) that show the benefit of consuming natural saturated fats. There is also plenty of evidence showing the harms of increasing your blood sugar and insulin levels from consuming carbs such as grains and starches. Michael provides plenty of links to research and articles demonstrating this.

      If you want to argue that butter and bacon are not healthy, please support your arguments with actual respectable studies.

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  7. Jim says:

    we already have a ‘fat’ tax since most basic foods (milk, bread, butter, coffee) are sales tax free in the grocery store. while most ‘prepared’ food (tv dinner, take out) is taxed.

    anyways we are fatter than ever and living longer than ever…

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    • Enter your name... says:

      Depends on where you live. I have lived in places that tax candy bars and apples both, and in places that tax neither.

      Thumb up 2 Thumb down 4
    • James says:

      “anyways we are fatter than ever and living longer than ever…”

      Who exactly is “we” here? I think you’re getting into the fallacy of taking population averages as truth. Even the most casual observation of the US population will show you that only a subset of the population are getting fatter than ever. A different subset – the marathon runners, bikers, and other exercise junkies – are getting fitter than ever. Since getting fit does not increase your weight much over “normal”, and getting fat these days seems to mean getting REALLY fat, the population average says we’re all getting somewhat fat.

      Now I would guess that if you looked at actual data, you’d find that it is the fit subset of the population who’re living longer, and (if in fact there is a lifespan increase after factoring out advanced medical technology), they’re living longer enough to cancel out the premature deaths of the fat subset.

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  8. Bjorn Roche says:

    Seriously? We subsidize foods like corn, artificially reducing the price of corn syrup to below the price of refined sugar, and then we want to tax fatty foods? That’s insane.

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