The Orwellian Efficiency of a "Being Fat" Tax

(Digital Vision)

The Danish policymakers who implemented the world’s first “fat tax” last week are remarkable not for their directness in addressing the growing Western challenge of obesity, but for their indifference to the plight of the poor, their deference to political correctness at the cost of economic efficiency, and their willingness to punish certain segments of society.

The Danes may have been the first, but headlines throughout the western world assessed the likelihood of other countries to follow, including this one. A fat tax in the U.S. (or the U.K. for that matter) would add to the growing thicket of regulations across local and federal jurisdictions intended to address weight gain and the external costs that obesity imposes on society— both through higher private insurance premiums and ballooning government outlays for the uninsured.

Whether the tax will improve health outcomes is an empirical question that won’t be answered for several years or more. Steep “sin taxes” on cigarettes, combined with anti-smoking campaigns, have achieved reductions in smoking rates. In other contexts, empirical evidence suggests that dramatic price increases are required to induce measurable changes in behavior, let alone health outcomes.

Regardless, there are plenty of other reasons to hope that we stop at importing fat-laden foods from the Danes and leave their fat tax over there.

First, a fat tax is regressive. That the surfeit of cheap, nutritionally bankrupt calories principally imperils the poor is a popular refrain among health and nutrition advocates. Low-income households are more likely than wealthy cohorts to eat fatty fast food and to have less access to fresh, healthy food. A fat tax, then, hits the poor harder than it does the rich, who can better afford the “good” unsaturated fats and avoid the “bad” saturated and trans fats. Given that the U.S. economy is still struggling in the worst economic downturn since the Great Depression, now would seem an inopportune time to impose an additional burden on the poor.

Second, a fat tax is inefficient. It achieves incremental improvements in health outcomes at a greater cost than other policies. Like taxes on sodas, candy and chips, and like mandatory calorie labeling laws, a fat tax is an indirect mechanism for reducing obesity-related health care costs. Rather than taxing the outcome that causes the problem directly, as demanded by economic efficiency, it instead taxes an input into the production of health outcomes.

Taxing the input allows substitutions among other inputs in the production function that impose costs and undermine the impact of the tax. For instance, if we tax saturated fats, people may eat less fatty junk food like ice cream, but more sugary food like candy. Or they may reduce consumption of saturated fats but also reduce exercise (as this study from the Journal of Political Economy suggests). Both substitutions make consumers worse off as they deviate from their preferred consumption bundle and potentially yield no benefit to society from reduced obesity costs. Thus, an efficient policy taxes being fat, not eating fat.

Finally, Denmark’s fat tax is poorly targeted. It punishes those who won the genetic lottery and can seemingly eat whatever they want without serious consequence to their health. It also punishes those who, by virtue of their work or their devotion to the treadmill, burn enough calories to afford junk food. The dis-utility borne by these individuals contributes to the costs of the fat tax and yields no benefits to society.

If policymakers were serious about implementing efficient obesity policy, they would have to tax being fat, not eating fat, by charging individuals for each “overweight” pound they’re carrying. It’s an idea so repugnant that even the most heartless economist surely wouldn’t endorse it. In fact, it’s so politically incorrect that perhaps only the folks at Irish airline Ryanair could embrace it. (In 2009, they floated the idea of a passenger-weight-based fee and have also broached such taboo topics in the airline industry as fees for use of airplane lavatories and cheap tickets for standing-room-only airplane cabins.)

Could an efficient “being fat tax” actually be implemented? Sure, so long as you have an affinity for the dystopian Oceania in Orwell’s 1984. We already have federal guidelines for determining obesity, at least to a first approximation. And as part of the looming expansion of government control of the health care industry, one could imagine compelling doctors to report patient pounds to the IRS, which would then have to collect the fat levy annually with income taxes.

Of course, some individuals are genetically predisposed to weight gain. The being fat tax would have to be sensitive to that, perhaps by granting deductions to those who are diagnosed with genetic conditions or other impairments that hinder their capacity to keep the pounds off. Doctors could report such conditions to the IRS, which would use existing audit powers to make sure people aren’t cheating on their taxes. As if the current tax code and looming public healthcare system aren’t complicated enough.

Yes, the being fat tax is dystopian, and we shouldn’t expect to see it promulgated from Washington or London or Paris anytime soon, for a lot of reasons. But it is also an economically efficient response to the rising social costs of obesity and underscores the efficiency losses that we must accept as the price of compassion and political correctness — objectives which typically do not preoccupy economists.


Statspotting

And, Half of the U.S. Population Will be Obese by 2030.

http://statspotting.com/2011/09/obesity-stats-half-of-the-u-s-population-will-be-obese-by-2030/

jonathan

1. The basic diet in much of the world is easily achieved in the west. The assertion that eating "healthy" requires spending more comes from a person who associates the idea with Whole Foods. Most of the world eats this way. It's cheaper.

2. We don't know how inefficient it is because it's new. While it's fun to argue beliefs, they're just beliefs. You could, on the other hand, point to this as an experiment. That would say, for example, that you have an open, not closed mind.

3. Your last point is nonsense. The tax is on the type of food, not the amount. You don't have to gorge on deep fried cheese balls if you have a high metabolism.

Simple test of an argument are whether it presents things as absolutes rather than seeing the gray areas and then whether it examines the counter perspective. You make an absolutist argument that ignores easy points that can be offered in contrast. My points may be wrong. I don't know and don't really care because my reaction is to your method of arguing in a pre-determined context in which you presume your correctness and only present your arguments. That is the kind of argument used to convince ignorant people.

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Aaron's cc:

Let's tax sex out of wedlock which leads to huge healthcare bills due to abortion and/or childbirth. Register the DNA of every infant. Don't release a child to the mother without positive identification of the father. No tax benefits or social entitlements for deadbeat parents.

Let's also tax unsafe sex, extreme sports and anyone with contraband in their bloodstream.

Let's tax the employers of illegals who dump education/health/police costs on the taxpayers.

Let's tax the legislators who vote for sanctuary cities.

Let's impose an 90% tax on government officials who are legally permitted to utilize insider information.

carlos

Hi! I'm writing from Denmark. I agree with you this tax would NOT work in the US. But there are not reasons to believe it would not be economically efficient in Denmark. You're really ignorant about the context here (minimum wage here is $20 per hour, we have universal healthcare, saturated fat has long been banned, and people here are slender! this is not about fat, it's about health! By the way I'm ashamed the Freakeconomics guys let a post like this in the blog. p.s. The Ryanair campaign was a marketing trick, that people like you keep falling into.

beuler

Taxing bad food is not about making it inaccessible to some people, it is about changing the RELATIVE prices between different types of food. If for one instant it crosses your mind that people in Denmark might go hungry, you really need to get off the couch and go and visit that country.

Why is changing the relative prices of foods important? Because we do not prepare our own food any more. So, for example, if the price of lard doubles (through tax), it makes economic sense for a food manufacturer or restaurant to substitute lard with olive oil which is a much healthier fat. A massive tax on a bad ingredient will only raise the price of the entire meal a few percentage points, if at all.

Ludovik

hi,
the difference between U.S.A. and Danmark is the universal health care system. In a country were your country pay for you to be healthy, I think it's normal to pay more on product like tobacco or unhealthy food. It seems just fair to me, if you take not care of your health at least pay more for unhealthy product.

Jonathan Bagley

Many fat people don't get ill. Why should they be penalised? Surely it should be illness that is taxed. You could this in the USA through medical insurance. With car insurance in the UK, you build up a discount on your premium each year you drive without making a claim. How about something similar?

Doug

Now that a 1st world government has enacted a fat tax, it's inevitable that other governments will follow suit.

Here's why:

1. Obesity is a visual representation of the chronic metabolic diseases that are eating up an increasing percentage of healthcare dollars.
2. Previously enacted sin taxes have generated large amounts of tax revenue for various levels of government
3. Governments can take the moral high ground that these fat taxes are being implemented as a "health promoting" measure
4. Since the Danes established a precedent, politicians no longer have to screw up the courage to be the first legislator to enact a fat tax.

There's too much money to be made off these fat taxes...they're gonna happen

http://www.healthhabits.ca/2011/10/04/fat-taxes-coming/

Julie

Thanks for the very well written blog.

Enter your name...

You'd actually want to tax "being expensively obese", not just "being obese". Some people can be obese (or smoke cigarettes, or get drunk) and have no health problems as a result.

Other people can't even be slightly overweight without having health problems. Many Asians, for example, are at high risk for diabetes if they are at a totally normal (for a white person) weight, rather than at the low end of normal (for a white person) weight. Some of our in-laws have type 2 diabetes because of Native American/Latino genetics, despite high levels of exercise, low-fat diets, and body weights that have been on the low side of normal their entire lives. (If you wanted to help them, you'd have to heavily tax rice, potatoes, and pasta, not saturated fat.)

I won the genetic lottery on cholesterol, but I seriously lost the genetic lottery on other points: multiple physicians have confirmed that I can safely eat slabs of butter if I happen to feel like it, even if it made me obese, because (1) my risk of suffering myocardial infarction is less than one-tenth of normal no matter what I eat, and (2) I'm unlikely to live long enough to develop obesity-related diseases anyway.

I don't care about a tiny tax like Denmark's (it adds maybe a couple of pennies to the cost of a dozen eggs?), but we are incapable of targeting any tax to the people whose behaviors are actually causing problems, rather than people whose behaviors would cause problems in normal people.

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bluethoatedone

Is it really so repugnant to tax being fat? I would strongly disagree...

We can all agree:

- Being Fat imposes costs on all of us
- Almost all fat people CAN do something about it (walk up stairs instead of taking an elevator, walk rather than take the subway, simply eat less).

On one hand we say the poor are too poor to afford to shop at whole foods for good food, fine, I like burgers too, but who says I have to order fries? Who says I have to eat the entire burger? While good healthy MAY be more expensive than McDs you know what's even cheaper than a happy meal? Skipping the coke and fries and just eating the burger with a glass of water. We're willing to tax something people are PHYSICALLY ADDICTED TO (cigarettes) why not tax something which is basically a lack of self control. When I was in college I lived on a budget of less than $10/day for food. I was able to eat relatively healthy food. I lived on the south side of chicago for a couple years, you wouldn't believe how many 300lb + people I saw going into mcdonalds, the fried chicken place etc. AND using food stamps to buy sugary soda. At the same time they could have walked into the Hyde Park Co-op, bought a cabbage for $1.50, some carrots, a pack of rice for $2, some stock 50c, some raisins $1 and had a very nice meal. A 10lb bag of white rice costs about $10 and will last for months. That's equal to 10 loafs of nutritionally useless bread that will last only a few weeks. A handfull of mung beans that you can sprout in a pasta sauce jar will provide you a couple days of highly nutritious calories, for a few pennies! But... you wouldn't believe the number of fat 8 year olds I saw constantly sipping on sugary drinks.

I have nothing against taxing being fat. Maybe first stop subsidizing sugar, soy beans, wheat etc. first.

The simplest way to achieve a fat tax isn't the stupid IRS shenanigans you suggest but simply allowing for cheaper healthcare for those that exercise some self control (BMI as starting point, those unhappy with it can choose to pay for a body fat % measurement). Life insurance already takes into account if I smoke, how is this so different.

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