Challenging Dogma - Fall 2007

...Using the social and behavioral sciences to improve the practice of public health.

Saturday, December 8, 2007

Market Distortions to Eliminate Portions: The Failure of Snack Taxes to Curb Obesity—Clara Lewis

Introduction

Imagine a hoard of hungry students walking into a convenience store after having just sat through a three hour social and behavioral sciences class. Will the students reach for the granola bars or the Twinkies? Will the small note under the Twinkie products stating that the price has increased by one percent due to a new excise tax change the students’ minds? Even a health conscious student will have to engage in the mental anxiety of weighing the costs and benefits before choosing the granola bars, a potential success story in the making! In the wake of good feelings arises the question: was it the tax or the health conscious individual that put the Twinkie back down?

Snack taxes are not exactly unheard of as state legislatures have been experimenting with various taxes on food for years. Such taxes fall into a group of taxes, known as excise taxes, which are levied on commodities or goods that people buy. In the food industry these taxes are more commonly known as the “fat” tax, “Twinkie” tax, or “snack” tax (hereafter referred to as snack taxes). In fact, South Carolina and California were among the first to tax soft drinks back in the early 1920s and 30s (4, pg. 2).

The public health intervention of implementing an excise tax on specific foods with poor nutritional value, an intervention based on the Health Belief Model (HBM), has failed to consider economic theory, address social disparities, or gain public support, and therefore, has failed to stem the tide of rapid weight gain spilling across America. While the motivation for such snack taxes may be altruistic, the solution to the nation’s obesity problem won’t be found in these “nanny-state” measures.

Economic Theory

In a simple world, economic theory consists of two basic components: supply and demand. Based on this assumption, if snack taxes are to affect consumption, they must influence at least one of these components. On the supply side of the economic equation, people will eat less “bad” food if fewer foods are available in the market, i.e. a supply side intervention. It is on the demand side of the equation that snack taxes aim to intervene by increasing the cost of the good to consumers. The extent to which snack taxes will impact consumption directly depends on the price elasticity of the snack in question. If demand is elastic, a small tax will result in large decreases in consumption; but, if in fact demand is inelastic, the tax will have little effect on current consumption (6, pg. 1). A broad interpretation of the HBM suggests that costs and benefits directly affect intention, which then leads to behavior. In this case, the cost of eating snacks is weighed against the benefits. If snack taxes denote a higher cost in relation to the benefit, then behaviors will adjust to rationally reflect this difference. The economic principle of elasticity implies that when the demand for the food is inelastic, the increase in cost needs to be sufficiently high in order to see a significant change in behavior.

Once applied to the HBM, this economic theory elucidates the flaws in the ability of snack taxes to decrease consumption of “bad foods.” In a study of the effects of varying snack tax rates on the consumption of salty foods, Kuchler, Tegene, and Harris found demand for salty foods to be inelastic over a small range of increases (.4% to 1%). Therefore the cost increase had little effect on the behaviors of individuals (5, pg. 9). Assuming that demand for salty foods is similar to that of snack foods in general, it is reasonable to conclude that minimal tax rates on other snack foods will fail to decrease consumption by any meaningful amount. Though the current range for snack taxes is between 1% and 7.5% in 19 states identified by Jacobson and Brownell (4, pg. 2), rates may or my not be large enough to induce behavioral change. Since there hasn’t been a decrease in obesity, it is probably safe to assume that the rates are in fact too low to tap into the elastic part of the demand curve, where changes in price would significantly change demand. It wasn’t until Kuchler, Tegene, and Harris ran simulations for rates as high as 30% in his salty snack foods study that he saw noticeable decreases in consumption (5, pg. 9).

This result, however, doesn’t preclude the possibility that higher tax rates on snack foods might be successful. Looking at the cigarette market as a guide, studies have shown that proportionately high cigarette taxes reduce the number of smokers (1, pg. 9). While officials might look to this result for hope that higher rates may indeed decrease consumption of “bad” foods, it is probably best policy makers chew on the ideas a little longer. The snack food and cigarette markets are very different in nature, so it is unwise to assume that since interventions based on the HBM worked in one market, it ought to work similarly in another.

Social Disparities

The saying “life isn’t fair” equally applies to the distribution of obesity among Americans of different race, socioeconomic status, and education. Mancino, Lin, and Ballenger did a study measuring the association of various social risk factors for obesity, including—but not limited to—income, perceived health beliefs, household structure, and education. They found that income, of all risk factors, had “the strongest marginal impact on diet quality” (7, pg. 10). Higher incomes in women were associated with drinking fewer sugary beverages, exercising more regularly, and better self-efficacy in terms of weight control. College educations were associated with better breakfast habits and more frequent exercising (7, pgs. 9-11). By focusing on those at the opposite end of the scale, it can be deduced that on average, individuals with lower incomes and less education are going to be drinking more sugary beverages, exercising less, and skipping breakfast.

The perspective that socioeconomic status does influence the quality and quantity of food being consumed is necessary in evaluating the failure of the snack tax to stave off obesity. Snack taxes are regressive in nature, meaning the tax disproportionately burdens those who spend a larger percentage of their budget on food (8, pg. 2). Consequently, by failing to consider the social aspects of snack taxes, again as a result of depending on the individualistic HBM, these policies may do more harm than good. As discussed above, the price elasticity of a particular food will determine how responsive an individual is to an increase in the price. Assuming, as Kuchler, Tegene, and Harris did, that the demand for food is relatively inelastic at the current low levels of snack taxation suggests that individuals will continue to purchase the same quantities of poor quality food (those foods subject to a snack tax) (5, pg. 1). All the tax will have successfully done is decrease the number of dollars that individuals have to purchase healthier foods. The tax isn’t high enough to induce substitution away from “bad” foods to good foods, nor is it high enough to appreciably decrease consumption.

Public Support

In order for public policy to gain favor among constituents, it must be, according to the framing theory, advertised in such a way as to sway enough people that the policy is worth the cost. Jacobson and Brownell argued that snack taxes would not only decrease consumption of “bad” foods, but would also generate revenue for subsidization of “good foods” or, at minimum rates, would fund nutrition education programs, research, etc (4, pg. 1). Hence, two components of the snack tax could appreciably influence its popularity: which foods are taxed and how tax revenues are used. While a healthy individual might support a tax on Twinkies so long as the money is used to tell people what horrors await them after consuming a Twinkie, this same individual might be less supporting if the food being taxed is one he or she actually prefers or the tax revenues are being used to further litter control.

The ability of state legislatures to determine which foods are to be taxed has been fairly limited. Various methods have been experimented with, including taxing soft drinks, soft drink syrups, vending machine products, candy, gum, ice cream, toaster pastries, and dietary supplements (4, pg. 2). Other people have argued for taxing foods with specific ingredients, such as Trans fat or saturated fats (5, pg. 3). However, states have found it difficult to determine and be consistent about which foods will be taxed without making a majority of people angry. In California, as Sheu points out, “popped popcorn and Milky way bars were taxed but unpopped popcorn and Milky Way ice cream bars were not” (9, pg. 18). For good reason, the Californian snack tax was ultimately repealed. Such confusion and differential treatment among snack foods sends the wrong message: there is a tax for buying a single slice of pie but the entire pie can be purchased tax free. It simply encourages substitution away from taxed bad foods to bad foods with great loopholes.

On the other side of the snack tax problem is determining what to do with the snack tax revenues. While Jacobson and Brownell supported using the funds for subsidizing healthy foods (a rather subjective decision) and nutrition education, few states have implemented this idea. In the 19 states Jacobson and Brownell list as having snack or soft drink taxes, only one used the funds in a remotely health-related way. West Virginia appropriated the funds (as of the year 2000) for West Virginia University medical, dental, and nursing schools (4, pg. 2). Framing the snack tax issue as having the potential to fund education programs about nutrition and the dangers of obesity builds public support. Turning around and spending the money on something else, indicates the state wasn’t interested in obesity in the beginning. Instead the state had some other motive, such as balancing the budget, for imposing an additional tax. Under the umbrella of health education and other wellness proposals, snack taxes may stand a chance against the food industries; without it, as demonstrated in multiple states, the taxes will be tossed overboard.

Alternatives

Although snack taxes have failed to slim waistlines any appreciable amount, it may be that similar approaches, framed more specifically to the problem of obesity, have more potential to fulfill the dream of a thinner America. However, much of the argument depends on how badly Americans value smaller pant sizes. On one extreme, Giles Coren, a correspondent of the Daily Mail in Great Britain, recommends a policy that “tax[es] the fat” by taxing people according to their BMI. Rather than taxing foods enjoyed by obese and non-obese alike, he thinks it would be more effective to simply tax those who don’t know when to stop, and includes an exemption for those whose genetics play a role in their weight gain (2, pg.2). This argument has the advantage over typical snack taxes in that it is limited to evaluating the BMI of individuals, rather than trying to characterize the “good” or “bad” nature of a food. Such a tax would also make people infinitely more aware of their health status. One study found that most men perceive their BMI to be much lower than it actually is and suggested that making men more aware of their condition will induce them to live more healthy lifestyles (7, pg. 11). Apparently, health awareness and education, rather than taxes, may be more effective in helping people help themselves.

As a third alternative to confused food taxation, public policy could aim to provide constructive incentives to alter people’s behaviors. Snack taxes tried to change the economic incentives that people had to eat “bad” food by increasing the price, but the taxes clearly failed in this objective. Madore suggests utilizing positive and less “nanny state” measures such as removing taxes on “healthy” foods and sports equipment and providing tax credits to encourage participation in health education programs (6, pg. 1). Eliminating taxes on healthy food will make it more comparable to the cheap snack foods. Promoting gyms by eliminating taxes removes one of the penalizations for exercising. Income tax credits for education programs might even be one of the incentives people need to learn more about their health. Direct monetary incentives also show promise. Health economist Eric Finkelstein did a study demonstrating that employees who are paid cash for weight loss find it within themselves to drop the pounds (3, pg. 1). Since multiple alternatives exist to the nanny-state snack taxes, it may be prudent to try them out before enlisting more extreme measures.

Conclusion

It doesn’t take a scale to determine that Americans have a growing problem with weight, which, if neglected, could result in a significant health and quality of life decline. In order to prevent obesity from weighing down the country, new and innovative interventions that take into account more than just the perceived costs and benefits of eating too much will have to be considered. Snack taxes failed to melt pounds precisely because the taxes represent a limited intervention based on the HBM. A dearth of sound economic theory, knowledge concerning inherent social disparities, and popular public support doomed the snack taxes from the beginning. Minimal tax rates will have little impact on overall behavior and will also put an unnecessary and unhelpful dent in the wallets of Americans with low socioeconomic status. Rather than penalizing Americans for eating, policy should focus on enabling Americans to improve their own health. The right incentives tied with health education have great potential to positively influence the American approach to food. In a country founded on freedom, it would be a shame to stifle the liberty to enjoy simple delectable pleasures merely because a non-infectious illness has taken the world by size.

References

1. Chaloupka F, T Hu, KE Warner, R Merwe, and A Yurekli. “The Taxation of Tobacco Products.” 3 Nov. 2007 <http://www.uic.edu/cba/cba-depts/economics/faculty/wpaper/wp_fc_199902d.pdf>.

2. Coran, G. “Shouldn’t we tax fatties?” May 2006. 3 Nov. 2007 <http://www.dailymail.co.uk/pages/live/articles/health/healthmain.html?in_article_id=388001&in_page_id=1774>.

3. Herper, M. “What Fat Costs America.” Nov. 2007. 3 Nov. 2007 <http://www.forbes.com/sciencesandmedicine/2007/11/08/obesity-health-economics-biz-health-cx_mh_1108obesity.html>.

4. Jacobson, MF and KD Brownell. “Small Taxes on Soft Drinks and Snack Foods to Promote Health.” Jun. 2000. 3 Nov. 2007 <www.ajph.org/cgi/reprint/90/6/854.pdf >.

5. Kuchler, F, A Tegene, and JM Harris. “Taxing Snack Foods: What to Expect for Diet and Tax Revenues.” August 2004. 3 Nov. 2007 <http://www.ers.usda.gov/Publications/AIB747/aib74708.pdf>.

6. Madore, O. “The Impact of Economic Instruments that Promote Healthy Eating, Encourage Physical Activity and Combat Obesity: Literature Review.” Jan. 2007. <http://www.parl.gc.ca/information/library/PRBpubs/prb0634-e.htm>.

7. Mancino, L, B Lin, and N Ballenger. “The Role of Economics in Eating Choices and Weight Outcomes.” Sep. 2004. <http://www.ers.usda.gov/publications/aib791/>.

8. Sands, E. “Snacks that Slim—Starting with Your Pocketbook.” 7 Aug. 2007. 3 Nov. 2007 <http://www.american.com/archive/2007/august-0807/snacks-that-slim-2013-starting-with-your-pocketbook>.

9. Sheu, W. “The Evolution of the Modern Snack Tax Bill: From World War I to the War Against Obesity.” May 2006. 3 Nov. 2007 <http://leda.law.harvard.edu/leda/search/toc.php3?handle=HLS.Library.Leda/sheuw-evolution_modern_snack>.

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1 Comments:

  • At December 14, 2007 at 11:27 AM , Anonymous Deinera said...

    I think your arguments are very solid, and that your argument comparing the use of this tax to that of the cigarette exise tax is interesting (especially in light of the other ways in which people are trying to modeling food legislation after cigarette legislation). Do you agree with Coren's argument for an individual 'fat tax'? It would seem that this does not take into account the multi-factorial causation path to obesity (e.g., low SES, lack of access to nutritious food), and instead suggests that, if you don't have a genetic predisposition, you're obese because you eat too much. Based on the many reasons people are obese (often beyond individual control), it seems that this approach would fail as well.

     

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