A Fat Tax We Can All Live With

Arizona’s governor, Janice Brewer, announced last April the state’s intention to consider a “fat tax” for overweight individuals on Arizona’s Medicaid roles.  The tax would cost $50 per year and only be levied on childless adults.  According to the Centers For Disease Control (CDC), approximately 25% of the state’s Medicaid recipients are overweight.  The tax would apply to those individuals who were overweight and who did not comply with their physician’s recommendations for a healthier lifestyle. Also considered for similar taxation are smokers, and diabetics who fail to control their diabetes.  And just to be fair, Arizona is one of the states identified by the CDC as having a prevalence of obesity measuring 24-29% of their general population.

While many incentive programs, both negative and positive (punishment vs. reward) are currently in place in various forms, this may be one of the first levied by a state for a Federally funded program.  The idea itself is not new and had been suggested as far back as WWII.  Some programs have been successful in their objective to increase the health of the individuals involved, such as Safeway’s discounted health insurance premiums for employees who are non-smokers, maintain a healthy lifestyle, watch their weight and cholesterol levels.  The State of Alabama levies a health insurance surcharge on state employees who smoke or are obese and do not seek assistance to combat or control those issues.

The real question is whether the implementation of a fat tax can coerce some of the unhealthy to change their ways.  Does a tax of $50 per year represent enough of a negative incentive to change a lifelong habit of a sedentary lifestyle and poor eating habits? If the results of increased taxation on alcohol and tobacco are any indication, the answer could be an emphatic “yes”.  But the way taxes are levied on alcohol and tobacco are different.

Cigarette smoking has been on the radar of public health officials for years and taxation of tobacco products is used to help fund specific health care initiatives, most recently the expanded SCHIP program.  But did the increase in taxation of tobacco cause a decrease in consumption? Studies have looked at the various reductions in tobacco use in different groups with an increase in the amount of tax.  The last increase in cigarette taxation by the Federal government raised the rate from 62 cents to $1.01 per pack.  The tobacco industry predicted a decrease in US consumption of 6-8 %.

When comparing the tax rate per state on tobacco vs the rate of cigarette smoking for 2009, except for California and Utah, there does appear to be a negative correlation between the amount of tax paid compared with the amount of cigarettes smoked.  In 2008, all states combined collected $16.5 billion in tax revenue and $16.6 billion in 2010 at the federal level.  It appears that applying a negative incentive, or punishment, to the object of one’s desire does result in decreased consumption.  But does this hold true for other “sinful consumption”?

Another frequently cited item of sin, alcohol, is also the subject of much debate and discussion with respect to its negative effects on society and health.  It is also taxed, at the state and Federal level, and a significant source of revenue for both. For 2008, the 50 states collected $5.8 billion in alcohol related taxes while the Federal government collected $9.5 billion in 2010. Studies have been conducted looking at the effects of increased taxation on its consumption, in all of its forms.  Across the board, these studies show a negative correlation between taxation and the consumption of alcoholic beverages.  That is to say that as taxes increase, use decreases.  An interesting observation is that even as taxes are increasing and consumption decreases, the amount of taxes collected is greater year after year. This is a well-known phenomenon expressed eloquently here by Alexander Hamilton.

If it works for tobacco and alcohol, why tax only overweight Medicaid recipients as Arizona proposes and just tax everyone who chooses to consume, well known, unhealthy fast food? I infrequently enjoy a fast food burger and would have no problem saying “no” more often if the price were to increase even a small amount.  The cost of a “meal” at some fast food restaurants is more than it would cost me to buy something healthy at the grocery and fix it myself.  In that case, it truly is just the convenience of fast food that is appealing.  With obesity and its health related issues at epidemic proportions in the United States, perhaps a tax can do what no health care provider has been able to accomplish.

You could also call a “fast food tax” a “use tax”. Most use taxes are aimed at those individuals who consume or use specific items or products. In addition to tobacco and alcohol, common examples include gasoline and tires. The revenue from a fast food tax could be used to fund some portion of individual states Medicaid programs or even healthier living education.  Many of the programs’ recipients are likely fast food consumers and have one or more unhealthy lifestyle associated diseases that is paid for by Medicaid.  Indirectly, if they continue to make unhealthy fast food choices, they would be helping to pay for a part of their own care.  Sounds good to me.

Doc B

My Opinion is free.
Advice is worth exactly what you pay for it.


One Response to “A Fat Tax We Can All Live With”

  1. Even though the $50 tax will do little to raise revenue for healthy living programs in the short-term, the hidden long-term benefit of this program is that it raises awarness amongst the general public about the negative healthy effects of obesity. By reaching the consciousness of the public and making people concerned about tehir own health, this program could substantially help to increase awarness of the obesity epidemic on a national scale.

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