11 Pros and Cons of a Fat Tax

In the world today, 1 out of 3 people are overweight. A growing percentage of the population is moving toward obesity. For the average child born today, there is a 50/50 chance, if lifestyles do not change, that they will develop Type 2 diabetes or other physical diseases and conditions that are associated with being overweight.

Several ideas have been brought forth to address the complex issue of obesity. One of them is the implementation of a “fat tax.”

A fat tax is applied to any foods or drinks that are thought to be unhealthy or may contribute to the global obesity issue. A soda tax is a common form of a fat tax, but it could apply to candy, fried foods, fast food products, and food items with high levels of saturated fat.

Here are the pros and cons of a fat tax to consider.

What Are the Pros of a Fat Tax?

1. It could help to slow the rise in obesity that is being seen.
According to ABC News, a 20% tax placed on sugar-sweetened drinks could lower obesity rates by as much as 3.5%. That could help to prevent up to 2,700 cardiovascular-related deaths that occur every year… and that is just in the United States. When looked at from a global perspective, about 20,000 people in the developed world could experience a reduced risk of premature death because of changes to their lifestyle that occur because of the changes that happen with a fat tax.

2. The proceeds from a fat tax could be used as subsidies for healthy foods.
Although the goal of a fat tax is to curb the sale of unhealthy products without restricting a person’s rights to choose that item, it doesn’t stop the high price of fresh produce and other healthier eating options. For this reason, using the revenues from a fat tax to subsidize healthier foods can make it easier for everyone to access what they need for a healthier lifestyle.

3. It can improve personal productivity.
In the United States, obesity has a $70 billion annual cost to businesses. This comes through lost productivity and other factors that are directly attributed to the added weight. By reducing the trend on obesity, people can have more energy. They can have a healthier immune system. This allows them to be more productive and cut into those losses that are being experienced.

4. It is cheap and effective.
Taxes on items that encourage weight gain is the least costly method there is to reduce consumption of these foods. The higher price of the product immediately discourages its consumption. It can be implemented quickly and results can be seen within weeks. An effective fat tax can reduce the average person’s kcal consumption by up to 150 per day.

5. A fat tax can be part of an equity neutral proposition.
A fat tax doesn’t have to be the only addition to taxation policies. Other areas of taxation can be addressed at the same time to reduce the impact that some households would face with this change. There will always be individual stories that have negative outcomes from any taxation proposal, but with a little work, a fat tax can be an equity neutral proposition that helps everyone eventually.

What Are the Cons of a Fat Tax?

1. It hits households who are poor the most.
Most people want to purchase healthy, fresh foods. The problem is that these foods tend to cost the most. Those who are poor may be unable to purchase them, so they rely on foods that could be included in a fat tax. Since households that are poor typically spend up to 30% of their total income on food, they would be hit in two ways by this process. They’d still be unable to afford the healthier foods and they’d be forced to pay more for the foods they can afford.

2. A fat tax can inadvertently tax healthy foods.
A fat tax must be written with specificity to make sure healthy foods aren’t captured in a blanket taxation policy. Some high-fat foods, such as nuts, avocados, and salmon, are known to reduce the risk of heart disease and can even lower a person’s blood pressure. A difference between saturated and unsaturated fats must be included in the policy for the fat tax to be effective.

3. There is no guarantee that eating patterns will shift.
A fat tax can shift a consumer’s food choices away from specific foods because they cost more, but that doesn’t guarantee a result. Consumers could just shift to unhealthy food choices that fall outside the taxation brackets. They may choose to eat unhealthy portions of “acceptable” foods instead or choose not to get enough physical activity every day. Food is only one part of the complex puzzle that leads to a person becoming overweight or obese.

4. The focus of the fat tax can be lost.
Policymakers tend to shift their perspective from reducing sugar and unhealthy fat consumption to the amount of revenues that are being generated by the tax. This causes many municipalities to tax all sweetened beverages or fatty foods over time so that revenue streams can be stabilized. By doing this, the money can be preserved, but it will not change the unhealthy lifestyles that people have which contribute to their weight gain.

5. The worst offenders are often excluded from a fat tax.
Most fat tax ideas tend to involve sugar-sweetened carbonated drinks. Other beverages, such as ready-made coffee, fruit juice, and milk, contain a higher sugar content than the carbonated drink, but are excluded from the tax. This means people can consume more when the tax is in place without subjecting themselves to the actual tax.

6. It raises product costs.
The city of Seattle adopted a fat tax in 2017 that targeted sugar-sweetened beverages, becoming the eighth city in the United States to do so. The price on the average 12-pack of soda, at $4.50 retail, will rise to $7.02 retail when the tax is implemented. Higher product costs encourage similar products to raise their own prices, even if they are not part of the tax. That means everyone winds up paying more for everything, but the businesses and the government get the bulk of the profits.

The pros and cons of a fat tax show that the intent of such a policy is good, but the outcome of such a policy can be unpredictable. Even with a policy that is specific, tiered, and thought out well, consumer behavior is inherently unpredictable. Some households will choose to pay more for the item, preventing the tax from having the intended effect. Obesity does need to be confronted and this is one way to do just that.

Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.