"For every benefit you receive a tax is levied."

Ralph Waldo Emerson, Poet

Pros and Cons of Fat Taxes

What is a Fat Tax?

advantages and disadvantages of the fat tax

A fat tax can be defined as a surcharge for food and beverages which are unhealthy and increase the likelihood for obesity in the long run.

 

This is not only true for food with plenty of fat, but also for food items in which excessive amounts of sugar are contained.

 

A fat tax should give people a financial incentive to refrain from the consumption of unhealthy food in order to improve their health level.

 

Even though the concept of a fat tax seems quite reasonable at first, it also has some severe downsides. In this article, the pros and cons of fat taxes are examined.

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Advantages of a Fat Tax

  1. Can lower the social costs related to obesity
  2. Improvement in health levels
  3. Increase in life expectancy
  4. Improvements in productivity
  5. Also children are more likely to eat healthy
  6. Increasing government tax revenue
  7. Social savings could be used for healthcare improvements
  8. Increase in fairness of tax policies
  9. Firms would adjust their food production
  10. Easy to implement
  11. People may learn what’s healthy and what’s not

Can lower the social costs related to obesity

Overweight and obesity are known to increase the chances for many serious health issues, including heart attacks and diabetes.

 

Those diseases are not only harmful for the respective individual, but also hurt our health systems since large amounts of taxpayer money has to be spend to cover those expenses.

 

While the costs for people who live in a healthy manner are relatively low, unhealthy styles of living lead to excessive treatment costs.

 

Thus, people with a healthy lifestyle have to cross-subsidize people who live unhealthy and consume plenty of fat and sugar.

 

Therefore, in order to lower the negative externalities and the social costs related to obesity, a fat tax could help to mitigate those issues to a certain extent.

 

Improvement in health levels

Another advantage of the fat tax is that the overall health levels of people would likely increase. If unhealthy food becomes more expensive, people have a greater incentive to switch from unhealthy to healthy food.

 

Moreover, people may recognize that they feel better by eating healthy, which may make them more eager to live a healthy lifestyle, independent of whether there was a fat tax or not.

 

Increase in life expectancy

Consuming unhealthy food and the resulting obesity also drastically lower the life expectancy of millions of people on our planet. Thus, through the introduction of a fat tax, the life expectancy of many people could be increased.

 

Of course, this is only true if the fat tax is working properly and people really adjust their consumption behavior in a healthier direction.

 

Improvements in productivity

The health level is also positively correlated with the productivity of people. If the health level of people increases, they are likely to be more productive. Thus, since fat taxes will likely increase the health levels of people and lower the obesity problem, chances are that the introduction of a health tax would also increase the overall productivity of an economy.

 

Also children are more likely to eat healthy

Since children often just have limited amounts of pocket money to spend, they have to choose wisely how they want to spend their money. Through the implementation of a fat tax, children may be less likely to buy sweets or other unhealthy stuff.

 

Since obese children are much more likely to also suffer from obesity once they grew up, a fat tax might be a great way to lower the obesity rate among children, which would also imply lower obesity rates for adults.

Increasing government tax revenue

Governments would also profit from a fat tax since they might be able to collect more taxpayer money, which they could spend for several other purposes.

 

This is especially important for countries that suffer from excessive debt levels since those countries urgently need money to stay solvent and to stabilize their currency.

 

Social savings could be used for healthcare improvements

Since the overall healthcare costs would decrease due to a lower obesity rate, these savings could be used for the improvements in healthcare systems.

 

This could mean to employ more medical staff or also to improve research on certain diseases in order to improve the curing chances.

 

Thus, due to a decrease in social costs due to the implementation of a fat tax, many other health projects could be financed with the money that would now be available.

 

Increase in fairness of tax policies

A fat tax can also be considered to be quite fair since the people who cause higher healthcare costs due to their unhealthy lifestyles will also have to pay for it while people who live healthy could be rewarded at the same time. Similar tax schemes are also applicable to alcohol and tobacco and fat taxes would be a logical instrument to further punish unhealthy consumption behavior.

 

Firms would adjust their food production

Depending on the design of the fat tax, food production firms may also get an incentive to adjust their production behavior in a healthier direction.

 

For instance, if people consume less unhealthy products since those products become more expensive due to fat taxes, chances are that food companies would adjust product mix in order to meet the preferences of customers.

 

This would in turn lead to a higher fraction of healthy products in our grocery stores.

 

Easy to implement

Another upside of the fat tax is that they are quite easy to implement. For instance, governments only have to introduce a law that states mandatory fat taxes for certain product groups.

 

After the introduction of such a law, producers and grocery stores have to adapt to those laws and will change their prices accordingly.

 

Consumers will react to changes in prices and chances are that the positive effects of fat taxes will be visible shortly after the implementation of the new law has taken place.

 

People may learn what’s healthy and what’s not

Through the introduction of a fat tax, the general public would also become more aware regarding which kinds of food are healthy and which are not. By becoming more aware about those things, people are more likely to voluntarily adjust their consumption behavior since they might want to improve their health levels.

Disadvantages of Fat Taxes

  1. General public may not accept it
  2. Financial problems for poor families
  3. Can be considered as some kind of discrimination
  4. High administrative costs
  5. High level of arbitrariness
  6. Expert advice is needed to make profound decisions
  7. Success of a fat tax is questionable
  8. Firms may lose their competitive edge
  9. Takes away personal responsibility from people
  10. Overall level of freedom of people is confined
  11. Must be high in order to work
  12. Job losses
  13. Geographical differences

General public may not accept it

Even though fat taxes have many advantages, there are also some issues related to them. For instance, the general public might not be willing to accept those fat taxes at all. This might be especially true in regions where a high fraction of people suffers from obesity.

 

In those areas, people will likely heavily protest against those taxes since they do not want that their favorite foods become more expensive.

 

Thus, depending on the region, the introduction of fat taxes might be difficult due to protests of the local population.

 

Financial problems for poor families

Studies have shown that poor families are more likely to consume unhealthy food since healthy food is often more expensive and many families are not able to afford healthy food.

 

Thus, through the introduction of a fat tax, poor people might suffer even more since they have to pay higher prices for unhealthy food but at the same time are not able to switch to healthy food since they simply do not have enough money.

 

Fat taxes might therefore hurt the poor much more than the middle and upper class, which could be considered to be unfair and might lead to additional issues related to poverty.

 

Can be considered as some kind of discrimination

Opponents of fat taxes might also state the opinion that those kinds of taxes would have a discriminative character and that they should not be a in line with the concept of liberty due to that. Therefore, also from a legal perspective, it is yet unclear if such a tax could be implemented due to its discriminative characteristics.

 

High administrative costs

For the planning, implementation and monitoring of fat taxes, many employees are needed. However, this kind of manpower also costs plenty of money. Thus, the tax revenue related to fat taxes might be significantly lower when administrative costs are taken into account.

 

High level of arbitrariness

Another problem with fat taxes is that they imply a high level of discretion. For instance, there have to be decisions regarding what sorts of food are considered to be unhealthy. Lobbyists from the food industry might try to influence these decisions in their favor. Thus, it has to be carefully and objectively evaluated whether certain food items should be subject to fat taxes or not in order to guarantee the effectiveness of those taxes.

 

Expert advice is needed to make profound decisions

Since fat taxes are a rather unknown territory, chances are that they will be not optimal right after the introduction of those taxes. It would take a little bit of time to evaluate the true effects and some adjustments might have to be made in order to optimize those fat taxes.

 

Thus, in these optimization processes, skilled experts are needed in order to assure the effectiveness of these taxes and therefore to improve the overall health levels of people.

Success of a fat tax is questionable

Since there are also some other factors that play a role in the development of obesity apart from unhealthy food, it is hard to estimate how effective a fat tax would really be. For instance, if obesity is caused mainly by a lack of exercise and not too much by unhealthy food consumption, a fat tax might be quite ineffective. Thus, the effectiveness of fat taxes highly depends on the true causes for obesity.

 

Firms may lose their competitive edge

Some companies that specialized in an unhealthy area of food production may also greatly suffer from the introduction of food taxes since they might lose their competitive edge. If fat taxes are too high, those firms may even go out of business since people may no longer buy their products and switch to more healthy alternatives instead.

 

Takes away personal responsibility from people

Another disadvantage of fat taxes is that they take away the personal responsibility of people regarding their consumption behavior.

 

At a certain age, people should be able to make their own decisions and should not be patronized by the state regarding what they should eat or not.

 

Thus, the introduction of fat taxes might also lead to a state where people lose their feeling of personal responsibility, which might also lead to a loss of independence in the long run.

 

Overall level of freedom of people is confined

Our ancestors fought for many centuries in order to achieve the level of freedom we have in our Western world today. However, through government interventions like the introduction of fat taxes, our overall level of freedom is lowered. Thus, in order to sustain a high level of freedom, fat taxes might not be the right way to go.

 

Must be high in order to work

The effectiveness of fat taxes would also significantly depend on the magnitude of those taxes. For instance, if the tax is rather low, people would likely not adjust their consumption behavior since the introduction of such a low tax would not financially hurt them too much.

 

Therefore, fat taxes would have to be sufficiently high in order to make a true impact on the health level of people. However, there might also be extensive protests of the general public against those high fat taxes, which might prevent politicians to really implement those taxes.

 

Job losses

People who work in companies that produce unhealthy food may also lose their jobs due to the introduction of food taxes. Since many of those companies would go out of business, people working in those companies would have to search for a new job.

 

Especially in regions with high levels of unemployment, this could be quite difficult. Thus, the introduction of fat taxes might also lead to high levels of local unemployment.

 

Geographical differences

Since the problem of obesity is quite unequally distributed over our planet, there are also significant geographical differences regarding the necessity and effectiveness of fat taxes.

 

For instance, while obesity is a big problem in our rich Western world, many poor countries in Asia and Africa do not have obesity problems at all.

 

Thus, while fat taxes might seem reasonable in many Western countries, other countries might not have any incentive to introduce those taxes.

Top 10 Fat Tax Pros & Cons - Summary List

Fat Tax Pros

Lower social costs

Increase of fairness in tax schemes

Can increase life expectancy

Improvements in health levels

Increase in tax revenue

People might become more aware

Adjustments in consumption behavior

Companies would adjust production

Implementation is fairly simple

Social savings

Fat Tax Cons

Lack of acceptance by the local population

May be considered to be discriminative

Significant levels of discretion

High administration costs

Level of freedom is lowered

Personal responsibility is taken away

Effectiveness might be questionable

Large geographical differences

Job losses

Must be high in order to be effective


Conclusion

The implementation of fat taxes is an interesting concept which might have many advantages and could improve the health levels of millions of people in our Western world.

 

However, there are also many problems related to the introduction of fat taxes.

 

Governments should take the opinion of the local population into account for the decision whether a fat tax might be reasonable or not.

Sources

About the author

 

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

 

As I went to university and got my Master's degree in Economics, I did plenty of research in the field of Development Economics.

 

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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