Could Sin Taxes Solve Fiscal Crisis?
Could taxing your beer help save us from fiscal crisis? Credit: Corbis
Alongside concerns of an imminent "fiscal cliff," discussions continue about another ongoing crisis: Our nation's high rates of obesity and related diseases.
Could a single strategy solve both predicaments? Some experts think so.
By raising taxes on fatty foods, sugary drinks, alcohol and other vices, the argument goes, the United States government could raise hundreds of billions of dollars.
At the same time, higher prices on junk foods would discourage people from over-indulging in unhealthy behaviors, in turn making us healthier and reducing medical costs.
"There's pretty good data on price and consumption, especially for cigarettes and alcohol, and there's pretty good data showing that as soon as you change consumption, you improve health almost immediately," said Michael Joyner, an anesthesiologist and exercise researcher at the Mayo Clinic in Rochester, Minn. "No other proposal would have as immediate an impact on public health and drive down both short-term and long-term health costs."
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On his blog, Joyner recently laid out a plan that would use "sin taxes" to produce an additional $650 billion in federal revenue for the over the next 10 years.
His proposal included four types of taxes.
To begin with, a 50-cent addition to the price of every pack of cigarettes and small cigars, according to a report by the Congressional Budget Office, would add $80 billion in federal revenues over the next decade.
With higher prices discouraging smoking, Joyner said, health benefits would be nearly instant. For the 18 months after smoking bans were instituted in restaurants and workplaces in one Minnesota county, for example, study earlier this year documented a 33 percent drop in heart attacks.
Higher taxes on alcohol could have similar benefits, Joyner said, citing a 2009 year report by the Cato Institute, a libertarian think tank. Currently at about 10 percent of the pre-tax price, if taxes were raised to 30 percent (adding about $1.20 to a typical six-pack of beer), the government would earn an extra $25 billion a year.
For every one percent increase in price, the report estimated, there would be a about a half percent drop in consumption. Raising taxes to 30 percent would increase the overall retail price by 18 percent, which could reduce the amount people drink by as much as 13 percent. That, Joyner said, would likely lead to quick and dramatic declines in rates of drunk driving, violence, even sexually transmitted diseases.
"If you can stop a car wreck for a young person," he said, "that's an immediate gain of 50 to 60 years of life."
Taxes on junk food could have similar benefits, according to recent research. A tax on saturated fats in Denmark, for instance, raised $200 million over the course of a year. And even though the tax was highly criticized and repealed after just a year, a similar tax could raise $12 billion each year in the more heavily populated U.S.
Perhaps more realistic is a tax on sodas and other sugary drinks, a proposal that is gaining momentum and attention.
A handful of studies show that regular consumption of soft drinks contributes to weight gain, partly because our brains don't register calories in liquids the same way that they respond to solid foods, said Michael Jacobson, executive director of the Center for Science in the Public Interest in Washington, D.C. Yet the average American drinks about 30 gallons of non-diet carbonated soft drinks each year, plus another eight gallons or so of sweetened sports drinks, teas and energy drinks.
Adding a tax of just a penny per ounce to sugar-sweetened drinks could reduce consumption of those drinks by nearly 25 percent, estimated study published last year in Preventive Medicine. And such a tax could generate as much as 20 billion dollars per year.
"A significant tax, like say a penny per ounce, would definitely cut consumption, have a modest impact on obesity and raise a huge amount of money," Jacobson said. "If some of that money were used to promote national mass-media campaigns urging people to eat more fruits and vegetables, stop eating junk food and exercise, we could build on that direct effect."
Of course, it is no easy political feat to add taxes to vices like soda.
"Getting any tax passed is extremely difficult, and here we're picking on an industry that will do everything it can to fight a tax because raising taxes is the single most effective way of reducing consumption and reducing sales," Jacobson said. "The industry has spent tens of millions of dollars opposing federal and state taxes."