Obesity: A Taxing Problem

The New England Journal of Medicine published a Health Policy Report a couple of weeks ago that examines the health and economic benefits of levying a tax on "sugar-sweetened beverages" (SSBs - think non-diet sodas and energy drinks). The authors document the trend of increased SSB consumption and note the links to increased body weight; the article is generally well-written and cross-referenced, with numerous citations to other peer-reviewed journal articles.

One point of interest is the assertion that SSB consumers do not bear the full costs of their consumption decisions. Why is that? Let's consider it step-by-step:

1) Can we agree that a statistical link exists between SSB consumption and weight gain? If not, then you are free to exit with no hard feelings. As with any serious research question, you are likely to find rigorous research that comes to an opposing conclusion. By considering the breadth of research that has examined the question, I think the link exists. If you're still with me, let's move on.

2) Weight gain poses health risks to individuals. This can be in the form of heart disease, high blood pressure, and diabetes, just to name a few.

3) The cost of managing and treating the health risks of overweight individuals is wrapped up in the overall cost to provide health care to the population at large.

4) In 2007, government spending (state and federal) on health care comprised 40% of national health expenditures (as reported by the Department of Health and Human Services).

5) Some amount of the government spending goes toward managing and treating the health risks of overweight individuals. A July 2009 article in Health Affairs estimates that medical costs of obesity have risen to $147 billion per year.

6) Public funds (i.e., taxpayer dollars) are used to partially subsidize the cost of SSB consumption.

The average consumer is likely not aware of these costs, much less including them in his or her decision to spend $1.39 on a 20oz bottle of soda. I am not aware of any research that attempts to include the present value cost of health care in the price of a soda, but there's an interesting research topic for you go-getters.

The authors go on to propose a small excise tax on SSBs (approximately 1 cent per oz), based on research findings that consumption tends to decrease as costs increase. So not only would the tax shape behavior that would benefit peoples' health, it would open a revenue stream that could benefit child nutrition and other anti-obesity programs. This in turn could help shape other behaviors that add to the cost of health care in the United States.

How does the beverage industry view such proposals? Not surprisingly, it is generally opposed to the tax idea, establishing a de facto unified front for the stance that a small tax would indeed reduce consumption (if that were not the prevailing belief, why would the industry oppose the tax? - it is merely passed on to the consumer, keeping the manufacturing and distribution costs flat).

As a strong supporter of establishing healthy habits for nutrition and physical activity, particularly early in life, I generally support sensible initiatives that help shape healthy behavior. Not only can a healthier population reduce some of the staggering pressure on the country's health care system, but healthier individuals are more likely to live long, active lives without many of the complications that accompany obesity. However, the proposal to tax SSBs has some pitfalls that must be addressed.

The biggest drawback I see is an inability to agree on which SSBs to target. Some would suggest traditional sodas only; others say energy drinks should be included; still others would include fruit juices, which often can be linked to weight gain for the same reasons as SSBs. Based on what I know today, I would oppose a tax on orange juice, and thus could not vote for a measure that imposed an excise tax on fruit juices. However, I do think that a clear link between SSB consumption and weight gain exists and that by limiting a tax proposal to beverages with less than a certain amount of natural fruit juice (say, 50%), we could target those whose consumption is most directly linked to weight gain.

Next, as with any new revenues, the stream created by the SSB tax would be fresh meat for anyone with a new spending proposal, tax reduction, or tax exclusion (all actions that have the same net result on the deficit). If indeed the goal is to expand child nutrition or other obesity-prevention programs, the revenues created by the tax would need to be fenced from competing priorities. Further, the revenue should not replace current funding for obesity prevention, as has been known to occur in other sectors (e.g., lottery revenue promised for education that end up offsetting cuts to state education budgets).

If, like me, you have the eminently reasonable position that no new tax should be enacted without great deliberation, I suggest that you consider the as-yet undetermined cost of that bottle of soda today. As someone concerned about the crisis in health care spending related to projected Medicare and Medicaid liabilities (p.31), I think this proposal might actually carry some weight.