Would Denmark’s New “Fat Tax" Pass in the United States? Should it?

SUMMARY

On Saturday, October 8, Denmark imposed a new tax on butter, oil, and other fatty foods. This tax is intended to curb obesity and improve the overall health of Danes, making Denmark the first country to impose such a tax at the national level. The law states that, for every kilogram (or 2.2 lbs) of saturated fat in a given product, consumers pay a tax of $2.90. For instance, the tax will increase the price for a stick of butter by about $.40, and a hamburger will cost $.15 more than usual.  I’m curious if such a law could ever pass in the United States, and more importantly, should such a law pass. To analyze this particular policy question, I intend to apply a framework designed by Lawrence Gostin, an expert in the field of public health law. According to this framework, the following five criteria must be met in order for a given intervention to be justified.

THE GOSTIN FRAMEWORK

(1)  There is a significant health risk.

(2)  The intervention effectively addresses that risk.

(3)  The intervention’s benefits outweigh its costs.

(4)   Any burdens imposed are reasonable.

(5)  The intervention is fair in the sense that burdens, costs, and benefits are justly distributed.

A SIGNIFICANT HEALTH RISK

Obesity in the U.S. is certainly a significant health risk. Currently, one-third of Americans are obese. That is to say, they have a Body Mass Index (BMI) over 30, whereas the BMI of a health adult should be between 18 and 25. More troubling, however, is the rate of obesity among America’s youths. The CDC estimates that 17 percent of children, between the ages of 2 and 19, are obese. This epidemic of obesity is of burgeoning concern, as obesity increases the risk factor for numerous diseases, including but not limited to:

·         type 2 diabetes

·         coronary heart disease

·         high LDL ("bad") cholesterol

·         stroke

·         hypertension

·         nonalcoholic fatty liver disease

·         gallbladder disease

·         osteoarthritis (degeneration of cartilage and bone of joints)

·         sleep apnea and other breathing problems

·         some forms of cancer (breast, colorectal, endometrial, and kidney)

·         complications of pregnancy

·         menstrual irregularities

More specifically, obesity increases an individual’s risk of heart failure from coronary heart disease by 104%; Two-thirds of adults diagnosed with Type 2 diabetes have a BMI of 27 or greater; And excess body weight accounts for approximately 27% of the cases of hypertension in adults.

This smorgasbord of obesity-related health problems clearly demonstrates a significant health risk. In fact, I believe we’d be hard pressed to find anyone willing to disagree that America’s obesity problem constitutes a significant threat to the public health. What is debatable, however, is the potential for a fat tax to successfully curb the obesity epidemic,  bringing us to our next question: Does the intervention effectively address obesity and obesity-related diseases?

THE INTERVENTION EFFECTIVELY ADDRESSES THE RISK

A tax placed upon fatty products would certainly increase the price of fatty foods, but that does not necessarily mean that it would curb obesity. Though I’m not an authority on economics, I can say that an excise tax, such as this, generally decreases demand for goods in proportion to the increase in price, and whether or not the decrease in demand is substantial or not, depends upon price elasticity.

By price elasticity, I mean that changes in price will significantly decrease demand. More specifically, if there are suitable alternatives available in the marketplace, or the good is not a true necessity, the increase in price will deter purchase or divert consumers to a comparable product. In a supermarket, for instance, you have numerous choices in food products, so the elasticity is high. If Land O’ Lakes raises their price 40 cents, more people will purchase I Can’t Believe it’s not Butter. Therefore, from an economic perspective, the fat tax appears to be a sound proposal.

However, I still find myself questioning this policy’s potential to curb obesity, because obesity is not simply the product of eating fatty foods. It is a reflection of high caloric intake and much lower caloric output—so eating an entire box of low-fat Snackwells is every bit as bad as eating half a carton of double-stuffed Oreos, especially if you live a sedentary lifestyle. It is the lack of regular exercise and overeating that are the key contributors to America’s obesity epidemic. Therefore, this policy might not be incredibly effective. The real question is: How effective will it be, and is it worth it?

THE INTERVENTION’S BENEFITS OUTWEIGH THE COSTS

Economic models suggest that such a tax would reduce the incidence of heart disease by as much as 10 percent, saving countless lives, while lowering the incidence of numerous other obesity-related illnesses. Additionally, the tax revenue generated by a fat tax could be reinvested into some form of health promotion or health education. Generally speaking, these benefits appear rather significant.

The costs of the intervention would be substantial, taken in sum, but are extremely manageable from a consumer’s perspective. For instance, 40 more cents for a stick of butter isn’t going to bankrupt anyone. It may, however, incline them to purchase the cheaper and healthier margarine alternative.

Major fatty food producers would likely see large reductions in profits, unless they adapted their products to meet a healthier standard. This cost to producers appears large, and it may even result in job loss, but the potential health benefits certainly justify those costs.

ANY BURDENS IMPOSED BY THE INTERVENTION ARE REASONABLE

The burdens imposed by the fat tax appear to be reasonable. Again, 40 extra cents for a stick of butter is not going to bankrupt anyone. More importantly, those goods that are being taxed are non-essential goods, and generally, there are readily available, healthier, and comparable substitutes to the items being taxed.

However, some view a fat tax as highly invasive, because consumers want to choose food products freely, without government intervention. An individual’s right to choose must be weighed against the compelling state interest. In the instance of a fat tax, the compelling state interest would be the preservation of life. Therefore, the preservation of life must be weighed against the consumer’s right to purchase products freely. In my opinion, the burden is minimal. Under the fat tax, individuals can still purchase products high in fat and butter; they’ll just have to pay a little bit more. This burden is perfectly reasonable.

The burden borne by the fatty food producers is also reasonable. While they may see a slight dip in profit (margarines), they can always modify their products to adapt to the new tax laws. I look forward to hearing other perspectives on this issue.

THE INTERVENTION IS FAIR (BURDENS, COSTS, and BENEFITS ARE FAIRLY DISTRIBUTED)

Apart from the fatty food producers, those most affected by a fat tax would be America’s poor. As with any excise tax, the increase in price is going to influence the poor more so than the middle class and wealthy. The small increases in price will influence the shopping habits of low income consumers more profoundly, because the small tax makes up a much larger portion of their income, relative to a wealthy shopper. For example, while wealthy, celebrity chef, Paula Deen, wouldn’t hesitate to pay an extra 40 cents for butter, a poor individual who is cost conscious would almost certainly opt for the cheaper margarine alternative.

Even though this policy affects the poor more than the wealthy, I feel the costs, benefits and burdens are still fairly distributed. For example, although the costs are higher to the poor, the poor stand to benefit the most from this policy.  Obesity rates are highest among those of lower socioeconomic status, which makes this a well targeted intervention. More importantly, as long as healthy and affordable substitutes exist, this policy is entirely justified, and imposes no unreasonable burdens or costs.

CLOSING REMARKS

Overall, I feel this is a worthwhile policy. I’m not at all convinced that a tax on fatty foods is an effective means of curbing the obesity epidemic, but it is certainly a step in the right direction. Obesity results from a high caloric intake and a low caloric output. Fatty foods are not the lone culprit in America’s weight problem, and a fat tax is not a silver bullet. Exercise and overeating must be addressed. Still, I would endorse such a law in the United States, because the costs and burdens are minimal, and I believe that a fat tax possesses some potential for improving public health. 

I look forward to reading your comments.