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Taxes on Unhealthy Food Are Ineffective and Hurt the Poor

Over the past decade or so, paternalistic objections to fat, sugar, and salt have gained traction among policymakers, mostly at the state and local levels of government. Predictably, new taxes have been proposed and imposed on foods and beverages containing those ingredients. For elected officials, the prospect of addressing health concerns while raising new tax revenue is nearly irresistible.

It’s certainly intuitive that taxing sugary soda and bad-cholesterol-ridden potato chips will prompt consumers to buy fewer of those items—and that people will substitute healthier alternatives. But it turns out that consumers’ buying habits do not change markedly in response to the higher prices, and that the burden of those taxes falls most heavily on the low-income, who allocate larger shares of their budgets to food than wealthier people do. Together with our coauthors Adam Hoffer and Regeana Gvillo, we describe these effects in more detail in a new paper published in the Journal of Entrepreneurship and Public Policy [1].

In assessing these kinds of taxes, it’s critical to understand the consumption choices people have available. Many programs have tried to address unhealthy eating, but individuals eat junk food not just because they enjoy it, but also because of a complex web of eating habits, accessibility of stores, cooking abilities, and time pressures. Even when consumers in lower-income neighborhoods want to buy healthier foods, their options are limited.

High-sugar and high-fat foods are shelf-stable, making them more convenient than food that spoils quickly and giving them a much lower price per calorie consumed. The absence of healthy options in so-called urban food deserts means that taxing junk food will disproportionately harm the people living there. Also, as everyone who has bought food from a vending machine knows, the combination of accessibility and hunger can trigger the purchase of unhealthy food.

Moreover, diet is only one component of a healthy lifestyle. The other components, such as regular exercise and adequate sleep, are not directly related to tax policy.

But the most important, though less obvious, point is worth repeating: expenditures on the items we studied don’t vary much with income, meaning that the poor spend a higher share of their income on these products—making taxes on them regressive.

People do tend to buy more expensive, higher-quality versions of alcohol, tobacco, and some foods as their incomes rise. The largest effect reported in our paper was for alcohol: a household that makes 1 percent more income spends, on average, 0.31 percent more on alcohol. (For the average household, this means that if income goes up by $428 per year, alcohol spending goes up $1.) But the quality of things like soda and potato chips does not scale up, and so expenditures remain basically constant regardless of income.

It is widely accepted that eating better enhances health, lowers health-care expenditures, and improves the quality of life. The problem is that the link between taxes on unhealthy food and the consumption of such food is weak, and that those taxes come at the expense of the most vulnerable segments of society.

William F. Shughart II, research director of the Independent Institute, is J.F. Smith Professor in Public Choice at Utah State University’s Huntsman School of Business; Michael D. Thomas is an assistant professor of economics at Creighton University’s Heider College of Business.

9 Comments (Open | Close)

9 Comments To "Taxes on Unhealthy Food Are Ineffective and Hurt the Poor"

#1 Comment By Fran Macadam On April 24, 2017 @ 7:09 am

Revision:

For elected officials, the pretense of addressing health concerns while raising new tax revenue is irresistible.

#2 Comment By DJ On April 24, 2017 @ 7:50 am

I do know that research is promising on if you ban the advertisement of fast food and junk food. Then you see a drop in consumption and an increase in health. Buuuuuuut, that screams first amendment trampling to a lot of people, so we are just going to have to live with being an overweight nation, cause let’s be honest, we’re not going to do anything. The military even said their worried about the weight of civilians and how that would affect emergency draft efforts, and a lot of conservatives still won’t trample the rights of businesses to make people healthier.

#3 Comment By bkh On April 24, 2017 @ 9:51 am

This is a battle that has already been lost. It will probably take a famine or large food shortage to change minds and eating habits for the general population.

#4 Comment By JLF On April 24, 2017 @ 11:50 am

A famine will likely not change any eating habits. As stated above, the worst offenders, high fat/high calories, tend to be the kinds of food with dense calorie content and the longest shelf life, which, ironically, is also a virtue during famines.

#5 Comment By WorkingClass On April 24, 2017 @ 12:28 pm

Fran said it best. The rich (looking at you Bloomberg) love regressive taxes and controlling their lessors much more than they love people with poor eating habits.

#6 Comment By Jon S On April 24, 2017 @ 1:37 pm

“For elected officials, the pretense of addressing health concerns while raising new tax revenue is irresistible.”

Partially true, IMHO. Politicians hate raising taxes on their benefactors. Property owners have a much higher probability of being a benefactor.

So why not keep property taxes low and increase taxes on lower-income folks? Keeps the pols in office and keeps the poor having to work hard to keep up!

#7 Comment By Anna On April 24, 2017 @ 6:36 pm

Not to mention how absurd the idea is of taxing unhealthy foods, as a disincentive to consumption, when the whole reason foods concocted out of various corn-and-soy-derived oils and starches are so insanely cheap is agricultural policies and subsidies that promoted those crops beyond anything market forces would ever have done, in the first place. How about eliminating those policies and subsidies, for starters? Oh, right, farmers would object, and they have an effective lobby, which actual poor people who eat this crap don’t – forgot about that. . .

#8 Comment By Msnthrop On April 24, 2017 @ 7:56 pm

Wouldn’t it be easier to subsidize healthy foods and make them cheaper and more easily accessible than fast food. Remove property taxes on small farms that grow produce and sell it in certain neighborhoods, have USDA grants that fund farm equipment purchases that increase fruit and vegetable production, small business incubators that assist restaurants that serve healthy food, etc. The crop subsidy system in the US is a mess, it could be revamped to focus on providing cheap healthy food, rather than focusing on corn and ethanol production.

#9 Comment By FatAmerica On April 25, 2017 @ 12:00 pm

I guess the question we´re waiting for you to address is how do we change consumer´s buying habits? Could taxation be an effective policy when combined with some public education on nutrition and on how to make cheap healthy meals?

A lot of us aren’t that keen on just sitting back and watching the health of our countrymen plummet and health costs soar for what are ultimately cultural and social reasons.