Taxing Fat

There is growing concern in rich countries, especially in the United States, about the increase in consumption of fats and sugar, and the related increase in obesity. These trends are particularly noticeable among teenagers and even younger children, who consume large quantities of fast foods and soft drinks. Some localities, like New York City, and countries like Denmark, have proposed to either phase out or restrict sharply the use of trans fats in french fries, margarine, and other foods. The concern goes far beyond trans fats, however, and includes proposals to restrict the sale of foods high in saturated fats, such as big Macs.

One proposal receiving some attention is to impose a tax on foods that contain high quantities of saturated fat in the hope of cutting down consumption of these foods. The basic law of demand states that a tax on saturated fat would raise the price of fatty foods, and thereby would reduce their consumption. A good analogy is with other "sin"taxes, such as the very heavy tax in most countries on cigarettes, or the large tax in many countries on alcoholic beverages. These taxes have greatly raised the price of these goods and reduced their consumption. For example, it is estimated that every 10% increase in the retail price of cigarettes due to higher taxes cuts smoking by about 4% after the first year, and by a considerable 7% after a few years. Responses are greater in the longer run because more people decide over time not to start smoking (or drinking), and many of those who were smoking (or drinking) eventually manage to quit or cut down the amounts used.

I do not know of any estimates of the responsiveness of the consumption of bad fats to higher fat prices, but I am confident it would be reasonably large, particularly for teenagers and lower income families who have the highest rates of obesity, and are more sensitive to these prices. I also believe it would be possible to define a fat tax that would effectively target foods that are high in saturated fat content. Yet I would like to express some doubts about whether that would be good public policy.

First of all, public policy should not ignore the pleasure consumers get from cheeseburgers, french fries, and other high fat foods, or for that matter from soft drinks, smoking, alcoholic drinks, and other such "sins". Good policies require that these pleasures are more than offset by strong negative public consequences.

Although the growing obesity of teenagers and of adults too during the past 25 years may be partly related to the greater consumption of fats, a stronger factor seems to be the increased time spent at sedentary activities, and a corresponding reduced time spent exercising and at other active calorie burning activities. These sedentary activities include watching television, surfing the Internet, playing computer games, communicating on chat rooms and through instant messaging, listening to music on iPods, and other devices. For a careful analysis of the growth in weight of teenagers that concludes that increased sedentary activities is the main culprit, see the 2006 PhD thesis by Fernando Wilson in the Economics Department of the University of Chicago.

The reduced exercise rate of teenagers is not mainly because they are too fat to have the energy to be active, but rather due to technological developments, such as the internet, computer games, iPods, television, and the like. Put differently, lack of exercise has caused obesity (to a large extent) rather than that obesity has caused reduced exercise. I doubt if there would be much of a call for taxes on computer games, or iPods, or use of the Internet in order to reduce obesity. Dr. Michael Roizen has pointed out, however, that certain types of computer games do require manual dexterity and other exercise.

Suppose, however, that increased fat consumption is the major cause of the gain in weight. Is this enough reason to justify active public interventions? I raise this question not only because of the pleasure received from eating foods with saturated fats, but also because doubts have been raised about the connection between excess weight and medical problems like cardiovascular diseases, diabetes, cancers, and other serious diseases. Of course, no one denies that extreme overweight is dangerous to health, such as a body-mass index (BMI) of over 45. This would mean that a male of average height weighs over 300 pounds, and less than one % of the American male population is that heavy relative to their height. And often an important distinction is drawn between overall weight and how much is concentrated in the belly, the later being much more hazardous to health.

A possibly more important consideration than the connection between fat consumption and weight may be that the consumption of fats crowds out diets richer in fruits and vegetables. Diets heavy on fruits and vegetables appear to reduce the incidence of various serious diseases, such as colon cancer and heart attacks. If such diets were to be encouraged, a more direct and powerful approach than taxing fat consumption would be to subsidize fruits and vegetables. Yet teenagers, the group that elicits greatest concern, are likely to have weak responses to lower prices of fruits, and of vegetables like broccoli.

Even if excess weight and bad diets are very unhealthy with present medical knowledge, is it irrational for teenagers and other young persons to ignore the recommendations of nutritionists and medical associations, and to consume diets heavy in fats and gain weight? Not necessarily if they recognize the trade off between present pleasures and future harms, but which they may not recognize. An additional and highly important consideration that is almost never mentioned is that the next 20-30 years will probably bring at least as much improvement in medical knowledge and new drugs as the past several decades did. We now have drugs that greatly reduce the potential health hazards of high (bad) cholesterol, drugs to lower blood pressure greatly, drugs to reduce the consequences of mental depression, and many other important drugs that were unavailable a few decades ago.

The not so distant future will very likely see big advances in fighting various cancers, colon and lung cancer included, in preventing or better controlling adverse effects of diabetes, in preventing or slowing Alzheimer's disease, and in reducing still further the risks of strokes and heart attacks. The many teenagers who are unaware of these medical trends, and are inactive, gain weight, eat few veggies, and consume much fat will still benefit from these medical advances during the next several decades.

Yet suppose medical progress slowed down, and that heavy saturated fat consumption significantly would raise the probability of contracting a major disease in the future. Are public policy interventions then justified? A common affirmative answer relies on the fact that overweight people who get serious diseases use health resources that are partly financed by taxpayers. This argument has some merit because of heavy taxpayer involvement in health spending.

But the major flaw is in the health payment system that would be largely corrected by providing stronger incentives to economize on health spending through encouraging health saving accounts, and requiring compulsory private catastrophic health insurance. These important changes in the health delivery system would give individuals much greater incentive then they have at present, partly due to greater insurance company pressure, to reduce their health spending by getting into better shape, eating better diets, and in other ways. To be sure, if the health delivery system were not greatly improved, the health spending "externality" from consuming fat would become more relevant.

I believe that aside from this externality argument about the use of taxpayers' monies, there is little reason for governments to intervene in eating decisions, with some important exceptions. The main ones might include policies to give greater publicity to the health advantages of better diets, and policies that kept unhealthy foods and possibly soft drinks out of school cafeterias and school dispensing machines. Perhaps a "say no" campaign against saturated fats would work, but I am dubious about its effectiveness.

Sometimes I wonder whether much of the public outcry over the gain in weight of teenagers and adults stems mainly from the revulsion that many educated people experience when seeing very fat people. Surely, though, this should hardly be the ground for interventionist policies!