Obesity Taxes Won’t Work

by Jonathan Berr | November 8, 2011 9:00 am

The government didn’t make me fat, and it can’t make me thin. This sad reality is getting lost on an increasing number of local officials.

As the Tax Foundation[1] recently noted, so-called obesity taxes are gaining popularity among cash-strapped state and local governments. This year 14 states proposed new soda taxes, and two states proposed new taxes on candy. Soda prices would have soared by as much as 264%, according to the Tax Foundation.

The problem with these taxes is that they penalize the fat and the thin equally. They also try to reduce a complicated issue like obesity to a simple exercise of picking good foods and avoiding bad foods. Unfortunately, people get fat and stay overweight for many reasons — psychological, physiological and economic — that can’t be solved by taxation alone.

The taxation of food also is far more complicated than most consumers realize.

“Chocolate bars that include any kind of flour, for example, generally do not meet the legal definition of candy,” according to the Tax Foundation. “In the case of soda, some states exempt beverages with as little as 10% fruit juice, while in Tennessee, Oregon and Texas, drinks must be 100% juice to be exempt.”

Blaming Coca-Cola (NYSE:KO[2])  and PepsiCo (NYSE:PEP[3]) for America’s bulging waistlines also doesn’t make much sense because people are drinking less soda than they have in years past. Per capita consumption of sugary soft drinks peaked in 1998 and by 2009 had dropped 22%, according to the trade publication Beverage Digest and calculations by the Center for Science in the Public Interest. Sales of ready-to-eat cereal[4], also vilified by the so-called food police, are on the decline as well. Other bits of conventional wisdom about food also deserve further examination, such as the role of food marketing in childhood obesity.

A recent NPR report[5] noted that parents eat most of the French fries in a McDonald’s Happy Meal and that kids quit eating it once they find the toy. Nonetheless, McDonald’s is facing a lawsuit from the Center for Science in the Public Interest[6] that seeks to prohibit the burger chain from including toys in kids’ meals. There’s even a counterproductive movement to retire Ronald McDonald, a brand that does quite a bit of good through the Ronald McDonald House Charities[7].

To be clear: I don’t dispute that obesity is a public health crisis. According to the Centers for Disease Control and Prevention, obesity generates about $147 billion[8] in annualized medical costs. Soft drinks and fast food don’t make you thin and can make you fat if consumed in excess.

Of course, if higher taxes resulted in McDonald’s (NYSE:MCD[9]) charging $10 for fattening food such as a Quarter Pounder with Cheese, fewer people would eat it. But with fewer customers, McDonald’s would be forced to close restaurants, lay off workers and cut back on purchasing supplies. If such a draconian measure ever happened, it would cause huge economic problems. But it still wouldn’t make any fat person thinner because the obese would get their caloric kicks from other sources.

Jonathan Berr owns shares of McDonald’s and Coca-Cola.  Follow him on Twitter@jdberr.

 

 

Endnotes:
  1. Tax Foundation: http://www.taxfoundation.org/news/show/27736.html
  2. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  3. PEP: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEP
  4. ready-to-eat cereal: http://finance.yahoo.com/family-home/article/112856/breakfast-cereals-declining-popularity-247
  5. A recent NPR report: http://www.npr.org/2011/10/15/141383327/eating-healthy-whose-choice-should-it-be?sc=tw
  6. Center for Science in the Public Interest: http://articles.nydailynews.com/2011-04-20/entertainment/29473112_1_monet-parham-happy-meals-lawsuit
  7. Ronald McDonald House Charities: http://rmhc.org/
  8. about $147 billion: http://www.cdc.gov/media/pressrel/2009/r090727.htm
  9. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD

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