One proposal to help finance health reform would tax fast food, salty snacks, and/or sugary drinks like soda. While critics see government meddling in citizens’ private lives, supporters of a “junk food” tax say such a levy could help finance expanded insurance coverage as well as lower health care costs by inducing people to switch to healthier diets. Taxpayers pay much of the expense of obesity-related disease through Medicare and Medicaid.
Would a junk food tax really reduce obesity? Economic theory says that by raising the relative price of unhealthy foods that contribute to obesity, the tax would motivate people to spend more of their income on foods that are healthy. As consumers abandon costlier junk foods, obesity rates would fall, and so would health care costs. At least that’s the theory.
In practice, a lot would depend on how the tax is designed. For example, a tax on chips could result in people choosing to buy more cookies for their afternoon snack. Similarly, a tax on soda might lead people to drink more beer. For a tax to be effective at reducing obesity, consumers must not respond by switching to other unhealthy foods not covered by the tax.
Lisa M. Powell and Frank J. Chaloupka recently combed the literature to find out what we know about how junk food taxes affect obesity. Their answer: not much. Most studies have concluded that changes in the price of unhealthy foods have relatively small effects on obesity rates, although one found that residents of states that repealed junk food taxes were more likely to experience subsequent obesity gains. Powell and Chaloupka concluded that it would probably require a “nontrivial” change in prices to significantly affect obesity rates. In other words, it would take a heavy tax to keep the weight off.
Like other sin taxes, a tax on junk foods would be regressive. That is, it would disproportionately affect low-income families who consume a greater share of those goods. However, this story may not be so clear-cut. Several studies have found that low-income households are especially sensitive to changes in the price of unhealthy foods, suggesting they will avoid much of the tax (and the financial hit) by reducing junk food purchases.
Moreover, low-income communities are among the most affected by obesity-related diseases such as Type II diabetes and heart disease. If a junk food tax helped change that pattern while also providing revenue to improve access to health insurance, its net effect could be extremely progressive (Len Burman has made a similar point in the context of a VAT).
A final stumbling block lies in defining junk food. Are high-calorie sports drinks junk foods or useful exercise aids? What makes a sugary drink healthy enough to avoid the tax? Do O.J. and apple juice make the cut? The
