A Tobacco-Style Tax on Fattening Drinks

The idea for "A Tobacco-Style Tax on Fattening Drinks" came from BusinessWeek reader Charles Weber, a U.S. Navy veteran and retired electrical contractor in Hendersonville, N.C.

Can taxing junk food solve the obesity crisis? This controversial idea has never been given a real-world tryout, but the combination of a budget busting fiscal crisis and a citizenry that keeps getting fatter is causing legislators and executives around the world to give a so-called "obesity tax" serious consideration. New York Governor David Paterson is the most serious of all, proposing in his 2009 state budget that an 18% sales tax be levied on non-diet soda and sugary juice drinks. Such a tax, he says, would raise $404 million in the fiscal year starting in April, and $539 million in the year after that—all to be earmarked for obesity-fighting public health programs.

If Paterson succeeds—and he's already run into vociferous opposition from the soft drink industry—it would likely be the first such broad tax in the world. But the concept of a so-called obesity tax is slowly gaining support, floated by such disparate public figures as British Conservative Party leader David Cameron, San Francisco Mayor Gavin Newsom, French tax authorities, and politicians in regions of Canada, Australia, and Ireland.

Paterson's proposal wouldn't, in fact, be completely precedent-shattering. A recent study by the Institute for Health Research Policy at the University of Illinois at Chicago found that at least 27 states impose taxes of 7% to 8% on junk food such as candy, soda, and baked good snacks, usually imposed when the products are sold through vending machines. Such levies are barely noticeable on food items that cost only a dollar or two.

15 Years of Debate

But with state budgets facing steep deficits in the wake of the recession, much larger taxes on soda and unhealthy foods could become more appealing, says Kelly D. Brownell, director of Yale University's Rudd Center for Food Policy & Obesity. "I've been contacted by a number of state legislators recently," he says. "I think it's only a matter of time before it happens."

Brownell isn't the most objective observer, since he was one of the first to give prominence to the idea of an obesity tax, having floated the concept 15 years ago in a New York Times op-ed essay. His proposal has generated heavy debate in food policy circles ever since. Opponents say such a tax would disproportionately fall on the poor, punish thin people who merely happen to like soda and candy, and fail to address the many complex factors that contribute to obesity. The American Beverage Assn., which says it will aggressively fight Paterson's proposal, calls the soda tax "a money grab that will raise taxes on middle class families and threaten thousands of jobs across New York State."

Nevertheless, the thought of raising the price of unhealthy foods in order to discourage consumption has slowly gained currency on the strength of two developments: the documented success of a similar consumption tax on cigarettes and the alarming increase in obesity rates. In 1995 about 14% of U.S. adults were considered obese (defined as having a body-mass index—a calculation based on height and weight—of 30 or above). Today that number is over 30%.

Obesity Mortality Gaining On Tobacco

A full two-thirds of American adults are overweight or obese, as are 33% of children and adolescents. The Centers for Disease Control and Prevention (CDC) estimates that obesity costs the nation over $90 billion in direct medical costs. And in April 2008, the Conference Board estimated that obese employees cost U.S. businesses $45 billion a year in medical expenditures and work lost.

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