Taxes: Weight Watchers for the Health Care System

A few days ago San Francisco Mayor Gavin Newsom proposed adding a surcharge on soft drinks with high-fructose corn syrup as part of a campaign to combat obesity.

Newsom’s “soda tax” is just the latest development in a series of metropolitan initiatives aimed at promoting healthier living. New York, which pioneered smoking and trans fat bans, has been the most gung-ho city and similar bans now have been passed, or are being considered, by cities across the nation—and the world

Efforts like the soda tax are often derided as unnecessary big government intrusions, especially for something like corn syrup (or trans fat) that doesn’t hurt bystanders the way second-hand smoke does. Those who eat or drink poorly only hurt themselves; and the right to self-destruct is a right the government should respect (or at least this is what some say).

But here’s the problem: the cumulative effect of saying that obesity isn’t my problem is to make it everyone’s problem. Newsom’s spokesman, Nathan Ballard told the New York Times that “there’s a well-established nexus between obesity, which is caused by high-fructose corn syrup, and the increased health care costs for the city.” According to a 2004 study in the Annual Review of Public Health, obesity is responsible for between 5 percent and 7 percent of total annual medical expenditures in the United States. Every year excess weight costs our health care system more than $90 billion. Even employers shoulder the burden of obesity: overweight workers require as much a $2,500 extra in health care costs, adding up to almost $300,000 in medical expenses for a 1,000 person firm.

The reason why obesity costs so much is obvious. Individuals who are carrying too much weight are at an increased risk of hypertension, osteoarthritis, high cholesterol, type 2 diabetes, heart disease, stroke, gallbladder disease, respiratory problems, and cancer. And it’s only getting worse. A RAND study from earlier this year found that from 2000 to 2005 the obesity rate in the U.S. (, i.e. the number of people with a body mass index of 30 or above,) increased by 24 percent. Meanwhile the number of people with a BMI over 40 grew by 50 percent, and the number of people with a BMI over 50 grew 75 percent.

To be fair, Ballard overstates the direct causality between corn syrup
and obesity. Dr. Walter Willett, the chairman of the nutrition
department of the Harvard School of Public Health, told the New York Times
in 2006 that “there’s no substantial evidence to support the idea that
high-fructose corn syrup is somehow responsible for obesity. If there
was no high-fructose corn syrup, I don’t think we would see a change in
anything important. I think there’s this overreaction." In other words,
we’re not 100 percent certain that corn syrup is what’s making America

But this isn’t an excuse for inaction. We know that sodas are low in
nutrients and high in calories—in fact, they’re the number one
contributor to Americans’ ultra-caloric diets. Whether or not
eliminating corn syrup is the silver bullet, we have a lot to gain by
cutting down on soda consumption.

Even if there is no proof that corn syrup is the leading cause of
obesity, citing uncertainty is a cop out. In risk assessment
science there’s something called the precautionary principle.
It states that if you understand the scope of a danger but aren’t 100
percent certain that a given solution will totally fix it—but you know
that this solution isn’t too costly and won’t make things worse—you
have to give it a try.

We in fact have a pretty good sense of what a soda tax can do for our health care system. The Commonwealth Fund estimates
that a national soda tax of one cent per 12-ounce drink would save our
health care system $283 billion over the next decade. If the surcharge
actually helped reverse obesity, the savings would be a whopping $1.1
trillion. Revenues from the soda tax could be reinvested in block
grants to states for obesity prevention programs, something that Newsom
is proposing at the city level. States would be eligible for such
grants only if they met minimum obesity control requirements, such as
banning trans fats, displaying nutritional information, banning soda in
schools, and enforcing existing regulations on nutritional value.

Tying these requirements to the soda tax helps us move past the
uncertainty as to whether corn syrup is the real bogey man, because the
soda surcharge would be part of a comprehensive set of anti-obesity
requirements. We would be casting the net wider.

The Commonwealth proposal is well worth considering. We know the health
risks of obesity. We know that, whether or not high-fructose corn syrup
is the cause of obesity, it’s not helping things. We know that a soda
surcharge wouldn’t make obesity worse and that we can package it with
other policies. We know the health care costs that we’ll incur if we
don’t try to do something about obesity in America.

Granted, there are some rebuttals. One is the fact that a soda tax,
like all sales taxes, is going to be regressive: poor people spend a
greater share of their income on sodas, so if you tax spending you end
up taxing more of what they make. And soda consumption does tend to
increase as income level decreases—poor people drink more soda than
rich folks.

But strangely, you want this tax to be regressive, because you want the
people drinking the most soda (low-income households) to be dissuaded
from doing so by higher prices. In that sense, the soda tax does become
a game of numbers. Your average teenage girl drinks
500 cans of soda a year; boys drink about 700. That means a family will
be shelling out an extra $50 or $70 per year for each soda-guzzling
kid. Will that be enough to change consumption patterns? I don’t know.
Finding the sweet spot is going to take some time.

Another objection is the standard slippery slope argument that
accompanies any attempts at government sponsored behavior modification:
taxing soda is just the beginning, and soon the government will be
telling us how to live our lives. This is a scary possibility, to be
sure; but it’s not scarier than the reality before us now. We already
live with quantifiable, not just hypothetical, health risks and health
care costs from obesity. They’ll get worse if we do nothing. And, as
per the precautionary principle, we don’t have to know that the soda
tax is a cure-all. We just need to know it won’t make things worse—and
so long as the only argument that it will is based on ideological
posturing, I’m not convinced.

So let’s give the soda surcharge a shot. We have too much to lose if we do nothing.

11 thoughts on “Taxes: Weight Watchers for the Health Care System

  1. There are lots of problems with this approach.
    1)Why would people who already have alternatives such as diet soda not choose them even if they have the slightest concern over obesity? They must have a strong preference for regular soda that wouldn’t be affected by price.
    2) Soda is not a price-sensitive item; otherwise competition would have driven the price down because it is very cheap to make. A small difference in price won’t affect consumption.
    3) If raising prices reduced consumption, sellers would find it worthwhile to take smaller margins to keep sales volume high.
    4) If people somehow were influenced to drink less soda – many would choose alternatives such as juices and many other drinks marketed as “healthy” that
    have as much fructose and other simple carbohydrate calories as soda. At least when they drink soda they have some idea that it isn’t good for them. Instead they’ll think they’re getting good nutrition but the only difference between juice and soda is water soluable vitamins that a) almost everyone gets enough of from other sources (not much scurvy or beri-beri in this country), b) cannot be stored in the body, and c) are therefore passed almost immediately into the urine.

  2. Seriously, this is a not-so-brilliant idea.
    The high-fructose corn syrup used to produce the sodas we all like to drink are subsidized by our government. This allows the market to pay the corn growers only 80% of cost and the government picks up the remaining 20%. That’s our tax dollars at work whether you drink soda or not.
    And who thinks that the soda industry refunds any profit to taxpayers for the privledge of allowing them to take advantage of the ‘corporate welfare’ system?
    Probably no one.
    So how do we address the problem. First stop providing corn subsidies and allow soda cost to reflect the actual cost to produce. Second use the money that had been subsizing high-fructose corn syrup to finance public health initiatives.
    If the goal is to curb the increasing rate of obesity in our country, then we need address the corporate motivations behind their offerings of cheap, subnutritional, and overly sweetened food products.
    In doing a quick search regarding high-fructose corn syrup, I found this article. Go read….

  3. Niko-
    I am for the soda tax. I hope it is the beginning of a number of $ and other incentives to encourage individual AND institutional prevention.-our only way forward!
    We must transist from an economically unsustainable disease care system to a genuine health care system.
    But we must implement prevention incrementally and always with compassion since we are so embedded as a culture in the high tech-high-cost treatment model.
    Dr. Rick Lippin

  4. Boston Tea Party!
    Seriously, can we trust government officials to really do what they say when there are large dollars at stake. News om says the monies collected would go to obesity prevention programs – but when does that every happen. Earmarks have robbed Social Security, the Transportation Department and other essential services. This is just another way to rob Peter to pay Gavin.
    It’s called personal responsibility. The government can’t make anyone make good choices.

  5. Hi all, thanks very much for the comments.
    Marc-you make very interesting points.
    (1) Diet soda is by no means a healthy option to regular soda. In fact, the more diet soda you drink, the greater the risk of obesity. Studies have found that for each can of diet soft drink consumed each day, a soda drinker’s risk of obesity goes up 41%. The thinking is, by approximating sugar, you make the body crave real calories, and then you need to eat more.
    In other words, the link between soda and obesity is there, even for diet soda drinkers. So trying to figure out their consumption choices amongst sodas doesn’t help much.
    (2)You may be right about a small difference in price not being enough to change the equation. But I don’t think that sodas are inherently immune to price adjustments. Look at cigarettes, which, as immediate consumption addictive substances, you’d think would also be immune to price fluctuations (from a consumption perspective). But as cigarette taxes, and ultimately prices, have increased, smoking–especially among youth–has decreased. Check out this report:
    And over time, soda prices have in fact remained relatively stable, well below inflation:
    Yes, it doesn’t look like they’ve dropped per se. But we also need to keep in mind that the soft drink market is really three players: Coke, Pepsi, and Cadbury-Schweppes, which together account for more than 90 percent of the US soda market (and most of the international market as well). In such an oligopoly, competition takes on a different air.
    Since soda is cheap to make, the soda market is more or less mature, and under a consolidated oligopoly, the big dogs don’t cut prices willy-nilly–they engage in strategic price discrimination. See, for example
    So I’m not at all surprised at the numbers on soda prices. It’s all about sustaining the market as is by fine-tuning prices in particular markets rather than going for the cheapest general sell.
    (3)Again, the example of cigarettes. I think there’s only so long creative accounting can compensate for goods that become prohibitively expensive (admittedly, it’s not clear that the Commonwealth number of 1 cent per drink would in fact be prohibitively expensive). But ideally consumption is curbed enough so that sellers eventually think that working hard to profit off soda isn’t worth the effort.
    (4) Presumably you could apply the same logic to other drinks that science has shown to be just as harmful to health. Here of course the slippery slope opposition comes in, but the more I think about it the more it seems that maybe singling out soda does may not be enough–especially since, as you say, many alternatives are just as bad.
    Lisa, interesting point about the subsidies, and very relevant. With the subsidies, it does seem unfair to tax consumers AGAIN for goods that their tax dollars may be funding on the back-end. In a subsidy-less world, however, you could still tack on the soda surcharge. But as you say, to get to that point you need to grapple with the corporations. A thorny undertaking, but a necessary one, I think.
    forHealth, I understand where you’re coming from, but the “let people make choices” argument ultimately doesn’t hold water with me, for the reasons I point out in my post. Sometimes enough people have proven that they will make the wrong choices–and by wrong I mean those choices that cumulatively harm everyone/ have externalities far beyond one’s waistline–and demand some form of collective response. I don’t feel this way for too many choices I disagree with, but given the high cost of obesity, and the fact that things don’t look to get any better, poor nutrition is one of them. And even then, I want to limit it to those food and drinks most clearly correlated to America’s weight gaining.
    All of this is not to say that we don’t need to tackle the problem from the opposite end, i.e. looking to encourage healthy behavior instead of punishing unhealthy behavior. But there is a sense that, at a certain point, you can try to do both at once. Hence the soda tax + funding anti-obesity programs.

  6. Niko-
    Of course a LARGE increase in soda prices would make a difference but this isn’t what Newsom is proposing. I’m not a super anti-tax libertarian but I understand where forHealth is coming from – this fits the perfect liberal stereotype of politicians grabbing for tax money any way they can while pretending (even to themselves) that what they’re doing is for our own good.
    The serious approach is what Lisa is proposing – going after corn subsidies. Ironically, the ethanol boom/subsidy has done much to raise the cost of corn syrup and will ultimately do more to reduce obesity than help the environment.

  7. If we could design a tax on unhealthy food that could be applied fairly and administered effectively, I’m for it. I also like high taxes on cigarettes, and I support a higher gasoline tax and/or a carbon tax to reduce energy dependence and global warming. The key reason I support these taxes is that they help to move the ultimate price of each of the affected products to a level that more fully and accurately reflects the full social cost of producing them. To the extent that we are successful in accomplishing that, we get a more efficient allocation of resources throughout the economy. The money raised can and should go into general revenues. The regressive tax impact on poor and lower middle income people can be mitigated by increasing the Earned Income Tax Credit (EITC).

  8. Marc, I very much agree that if the tax doesn’t change anything or misses the point, it shouldn’t be passed. I gravitated toward the Commonwealth numbers in health care savings to argue my point that it would make a difference, and I’m inclined to lend some weight to their estimates based on my knowledge of the organization. But you and Lisa may be right that there is a far more fundamental problem than consumption at work here, and that we could do everything the soda tax promises to do MORE effectively by addressing the subsidies. That is something that really warrants addressing-and something that I’m going to learn more about. One of the great things of having such an informed readership here–sometimes the next post comes from the comment discussions!
    Barry–you’ve very succinctly summed up what it took me 1,000 words to say. There is a social cost to some forms of consumption that need to be considered in prices. Bingo.

  9. Niko,
    Thanks for the kind words. I may be just a musician, but the social/economic issues surrounding health and healthcare have been on my mind lately.
    I also am curious to learn more about the impact of subsidies on the health of our citizens and the stocks on Wallstreet.
    Priorities need to be addressed.

  10. Let’s also have a surcharge on steak, Baskin-Robbins, nachos, Danishes (trans-fat free ones, of course), cheese, pasta, Snickers, and just about anything that is ostensibly “food” at a 7-11 or Quickmart-type establishment.
    While it’s tempting to go after soda, the slippery slope argument holds…where does it end?
    Surcharges on pancakes with syrup? Or just on the whipped cream or butter one might slather on?
    Ban carbs, if one believes they are the enemy. Ban sugared foods…no, wait, ban fatty foods…no bacon for you!
    Let’s ban TV, as we know kids watch too much and get fat. So, end cable and satellite and CBS, Fox et al.
    Seriously, where do you want to end up? Ban everything but vegetables and fruits (except maybe bananas, which are pretty starchy and calorically-dense)?
    It’s just ludicrous to tax one item or type of food.
    I’d rather tax the lawyers who want to sue over playground incidents, where schools have to ban playing “tag” or won’t put up playground equipment, for fear of a lawsuit. If there is one thing that makes us obese, it’s lack of activity.
    I haven’t even hit on all the problems with forcing us all to share the burden of each other’s illnesses. Yeah, I’m pretty libertarian in this…ban smoking in public, that’s defensible…but it’s chilling to me to read ideas such as this, where we would take away our freedoms for doubtful science.
    Even if the science is correct, would we ban every single possible harmful activity? We could save billions in ER visits if we would only all walk to work, slowly, avoid doing so in any inclement weather, would ban all sports and any activities in which someone would possibly get hurt. And come to think of it, ban all stairs, just have us all go up and down on ramps to our doors, and then in the house, single-level…
    I’m an ER doctor, and I see the “ravages” of accident; how are we gonna keep anyone from getting hurt?
    I know there ARE good arguments against soda…it is not a health food, by any stretch of the imagination. But to tax it preferentially and believe this will cure the “obesity” epidemic is about as dumb as wasting a few billion more on our “war on drugs”, which has not exactly been a resounding success either.