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Is A Fat Tax A Legitimate Source of Tax Revenue?

By Mark Riddix

I was reading an article today about how the governor of New York David Paterson is including a “fat tax” in the 2010 budget. According to the NY State Health Department, the fat tax proposed in New York would apply to all drinks that “contain more than ten calories per eight ounces, such as soda, sports drinks, ‘energy’ drinks, colas, fruit or vegetable drinks containing less than 70% natural fruit or vegetable juice, and bottled coffee or tea.” All full calorie beverages would see their prices increased a penny per ounce. Paterson is trying to cover a 7.4 billion dollar deficit in the state’s annual budget. Lawmakers estimate that a tax on sweetened beverages would raise about 450 million dollars a year.

What is a Fat Tax?

A fat tax is a surcharge applied to a product that is deemed fattening (food, beverages). Examples of fattening food products are cookies, cakes, pies, chips, candy, chocolate, burgers, pizza, fries, and hot dogs.  Fattening beverages would be soft drinks, sodas, energy drinks, sugary fruit juices, and sports drinks.  Surprisingly enough, a fat tax can even apply to a person! Any person with a BMI (body mass index) of 35 or above is classified as morbidly obese and could be subject to a fat tax.

The state of New York is not the only place considering adopting a fat tax. Many states are considering imposing a fat tax to plug budget shortfalls and keep up with rising health care costs. The state of Alabama has implemented a fat tax so that employees with a BMI of 35 or greater have to pay $25 per month more for health insurance. Whole Foods Market is offering employees discounts based on BMI. The lower your BMI is the bigger the discount at Whole Foods.

Other countries are following suit as well. Denmark, Romania and many European countries are seeking to reduce obesity by instituting fat taxes. Air France is charging a fat tax on obese customers that fly its airline. Obese individuals will have to pay for 1 seat and 75% of the cost for a 2nd seat. Fat taxes on air travel are expected to increase in the future. In the UK, obese people are being charged a fat tax after they die! Families are paying surcharges for coffins and cremation services. So, are fat taxes really the way to go?

Advantages

1. It encourages individuals to reduce their fat consumption and eat healthier which will reduce heart disease, diabetes and strokes.

2. It will raise revenue for state governments and help shore up budget deficits. The additional revenue could be used to fund needed local services and programs.

3. It will significantly lower health care costs for states and companies. The extra savings can go towards employee wages and create more jobs.

Disadvantages

1. It is unfair to fat people and may be seen as discrimination.

2. It punishes corporations that have a popular product deemed unhealthy by the government (Coke, Pepsi, Nabisco, McDonald’s). This may lead to a loss of jobs at companies whose food products are deemed unhealthy.

3. It is more governmental regulation and taxation. An increase in taxes during an economic downturn is never good.

Final Word

The fat tax is certainly a creative tax proposal that was born out of tough economic times. While it has some definite advantages for both state governments and individual people’s health, there are also some discriminatory issues as well as more damage to people’s wallets. What are your thoughts on a fat tax? How would you feel if your state imposed a fat tax on you? Do you think that a fat tax has an effect on people eating healthier?

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • Karmella

    As for the taxes, I find the whole idea offensive. And I’m not fat, nor do I drink full-calorie drinks – which I avoid because I don’t want to get fat.

    As for the airplane seats and whatnot, private companies should be able to charge you for the space if you take up the space that two people would take. If you use extra services or space, you should be responsible for paying for that service or space.

  • Yana

    Milk is immune to this? I guess the key is “sweetened” beverage. Of course I’m against this, but if it encourages the use of beverages containing aspartame, it will be more costly than leaving soft drink drinkers alone. My opinion is that sweeteners such as aspartame are very bad for one’s health, and that diet soft drinks contribute to obesity as well as health problems. The only beverages we purchase are whole milk, bottled water, coffee and tea.

    Fat people often use diet products and diet food. Non-fat people (at least the ones I see) eat and drink what they want, without supporting the diet marketers.

  • Olivia

    It would put an unfair burden on people who purchase cheaper foods. I’m not talking about sweets, but hot dogs and hamburger meat cost less than fish. Sometimes canned fruit is cheaper than fresh. So poorer people will get a bigger hit no matter what they weigh.

    And where will it stop? If these things are government regulated, what’s to prevent other kinds of prohibitions? You have to develop infrastructure to enforce these new laws and once they’re in place it would take legislative dynamite to dissolve the departments, structures, and jobs involved. Government rarely gets smaller and more accountable.

    • Jkat

      why arent u talking about sweets when the article is… nobody said hot dogs and hamburger meat was going to be taxed…

      • Jkat

        (*were) going to be taxed

  • http://www.insweb.com Robert

    The land of the free is quickly becoming the land of taxation and absolute government control. If someone wants to buy a Pepsi, so what? This is America, I should be able to buy a soft drink without government slamming taxes into the equation. An extra 10 cents isn’t going to change habits anyway. What’s next, soda and fast food rations? Only 2 portions per month?

    • Jkat

      why r people so resistant to the idea in the first place, i admit that it probably wouldnt do anyone anygood economically considering past records of goverment spending of tax revenues… but the initial idea is not what we should be fighting, we should be trying to find out other ways on how to lower whole food costs while not taxing junk food and only punishing the poor. But one point I want to make is that america has an extremely agressive, selfish and greedy attitude… and apparently when it comes to food not just money…

  • http://www.deitchley.com/blog Amy

    To avoid it seeming so discriminatory, I prefer an incentive approach. Give me a discount on my health insurance if I maintain a healthy BMI or improve a bad one.

    My employer puts an extra amount of money in our HRA/HSA accounts if we fill out a health survey that points out areas we can work on, if we join weight loss or quit smoking programs through our insurance, etc. It’s not cash to blow elsewhere, but it is definitely spendable for medical expenses and reduces out of pocket!

    Our insurance also includes free gym memberships all over town. What a great idea! The program even gives ‘points’ to be traded for merchandise for every time you visit a gym. Any time an employee gets healthier because of these incentives, the employer’s health costs go down.

    • Mark Riddix

      A preventive plan makes more sense than a punitive plan.

    • Jill

      The only bad thing about BMI ratios are that they are skewed considerably. According to BMI, most athletes if weighed down with muscles are considered morbidly obese. As an exercise physiologist, I work with football players, tennis players, basketball players, and wrestlers that are morbidly obese because they are 40lbs over what statics state they should way. It does not consider muscle mass or bone density in its calculations. So, what should we go by instead?

  • Kyle

    Oh, this is a great idea! NOT!!!!!!!

    Once again, my “free country” is telling me what I should and shouldn’t do. Seriously, this completely ignores the freedoms set forth in this country. I agree with Amy, give incentives. Because this tax would not just harm fat people, but all people. Plus, I’ve seen many skinny people eat twice as much fattening food as I have.

    • Sarah

      Your “free country” has more rules than you can shake a stick at already, are you really surprised with one more. And you should know that skinny does not equal healthy. Tons of skinny people have health problems like heart disease, high blood pressure, lung disease, cancers of all kinds and many, many more. Some people are just naturally thin. If you don’t feed your body properly and use it to its full potential (a.k.a. exercise) you will get sick at some point. Also, this isn’t to stop people from eating junk food or to harm anyone, it’s simply to offset the medical costs they create when they get sick because they don’t take care of themselves. Its not fair for people who work hard to take care of themselves to pay higher premiums because you want a burger for lunch everyday. This tax would actually help by lowering healthcare premiums and making healthy foods the cheaper option. Actions have consequences, period. You’re not being told what to do, but if you want to eat the junk food, you have to pay the tax for it. Just like smokers have to pay the tax on cigarettes because its widely known that cigarettes cause a slew of health problems that have to paid for somehow, why not by the people who smoke? As for a tax on actually being fat, that’s ridiculous! If you are making bad choices that lead to healthcare costs, by all means tax the foods that do it, however some people are born with health problems that cause obesity and should only be charged for the bad decisions they choose to make. And I completely agree with the incentive plan Amy mentioned, but why not an incentive and a tax plan?

    • Hippo1701

      Where is this “free country” you are mentioning? The “free country” I am aware of speaks of speech, press, guns, non-racist, non-sexist things. Not things about food or smoking.

  • http://Healthcareoutsider.com Michael S

    In response to kyle, and anyone else who says: “this is a free country, I can do whatever I want” think about this: your choice to eat ridiculously unhealthy food means there’s a good chance that you and the millions of Americans like you are going to develop some serious health complications, costing the health industry billions of dollars each year.

    Wonder where those costs go? They go to higher medical fees and higher insurance premiums. This means that I am going to end up paying for your bad choices. It only makes sense that we come up with some way to curb these habits and make the bad eaters in our country pay for the damage they’re doing to our public health system. Here’s an article that details a well thought out public tax on unhealthy food: http://healthcareoutsider.com/2010/03/how-to-pay-for-the-health-bill-tax-the-foods-that-make-us-fat/

    • Mark Riddix

      Both of you are making valid points.

  • janet

    The rationale of this type of taxation seems to be that individuals should bear the costs their consumption choices force on society. Once this type of taxation is viewed as acceptable, it seems to be a slippery slope. If this is applied equitably to all groups, think where it could lead. If you choose to have children and I do not, why should I pay property taxes to support the public schools?? There’s a shot, a pill, a patch, an abortion or just keep it zipped. Children are a totally avoidable consumption choice where society is forced to shoulder much of the cost. The same is true of uneducated workers. Why should society pay for the fact they did not prepare themselves for the job market? Do we really want to go there?

    • Mark Riddix

      You have a very interesting viewpoint on this issue.

  • iio

    First off, this is not a prohibition. No one is saying you can’t buy a “Pepsi” though I don’t know why anyone would when there are great tasting Cokes in the ice chest. Anyone can purchase the foods they want IF they can afford both the fat that comes with the food and the new tax.

    The incentive idea is a great idea, lower my insurance premiums if I’m doing the right things and keep them high if I choose to gain weight, smoke, etc.

    Speaking of smoking, how many people that now are against the fat tax actually voted for the cigarette tax? What people don’t see is that once you vote for one it opens the door for other things. When they started raising the taxes on cigarettes I knew that a fat tax was just a matter of time,, it was the next logical step. More people die from obesity than from smoking but yet smoking is taxed at a ridiculous rate here in California. We are being bombarded by commercials that pretend to show you the “TRUTH”. Where are the commercials that show you the “TRUTH” about fast food? How about a commercial that tells you the truth about cigarettes vs fast food?

    I’m not saying that smoking is a good idea or that anyone should start smoking, but what I do know is that we tax what we don’t like but eventually YOU will be doing something I don’t like. Should I vote to fine you because this tax is basically a fine for doing those things that you enjoy?

    Think about this, medical research shows that nicotine is an addiction, smoking is the only addiction that is taxed this way. What are you addicted to?

    If we start taxing based on those things when will we start taxing people for every mile driven? Car crashes kill millions of people too! If I someone has a DUI on their record or speeding tickets will the DMV fees for a drivers license and car registration fees increase? That’s next my friends, if we keep this up we will pay huge taxes on those things that we enjoy as long as there is a possibility of injury or death.

    Responsible voting is the only way. This nation is great because it listens to it’s people, it’s time to speak up and stop this ridiculous push to make this strong country into a soft one because we are too afraid of everything. We are losing control by our own hand.

    • Yana

      You are exactly right, iio, and said it well. When you discriminate and practice extortion on one group of people (such as smokers), you are opening the door and encouraging exploitation of everyone. It isn’t safe to think either “That doesn’t apply to me”, or “It’s fine, because it didn’t come out of MY wallet” – because your wallet is next.

    • Michael S

      I love slippery slope arguments. “If we allow the government to levy taxes on people who consume unhealthy things, soon they’ll be taxing you for spitting on the sidewalk!” The government isn’t taxing (or considering taxing) something BECAUSE it’s addicting, they’re doing so because it decreases the burden on the rest of the taxpayers and draws more from the selfish people who hike up insurance premiums, medical fees, and taxes by killing themselves with unhealthy products. By the way, we absolutely should increase DMV fees for people with DUI’s. be careful with your replies, soon the government will be taxing paranoia.

      • iio

        I agree with your reply but where is the line? Is the line when it hits the things that YOU enjoy? I understand the argument and I understand the reasoning for the taxation but the real question is when have we gone too far? That question must be answered before we reach that line.

        • iio

          BTW, higher taxes do not stop people from doing those things that we don’t like, the smoking example still applies, yes smoking has decreased but it has not been eradicated. McDonald’s advertises on TV, cigarette companies can not and yet there are millions of smokers. The tax has done nothing to stop people from smoking only a personal decision can do that.

    • Yana

      Higher taxes aren’t supposed to change behavior. They’re supposed to take more money from us. In addition, they do not decrease the burden on “the rest of us” because 1) Government cannot set priorities appropriately or be a good steward of the funds collected, and 2) The burden does not come from the people being taxed; it comes from those taking our money via taxation and foolishly dispensing it, as well as those who played the game taking educational loans and now charge prices that are 10 times what they ought to be for services rendered – so that they can pay off a large debt.

      For the example of smoking, it would make sense to make it illegal if government doesn’t want people doing it. It would be a great thing to do that, because so many jobs in the tobacco industry would be lost, stocks for Altria etc would go down (even though they sell other products), crime rates would rise resulting from certain smokers no longer being “medicated”, and we could watch people die from cancer, heart disease etc who lived lives of abstinence and jogging. But don’t expect that the taxation and the encouragement of social disapproval of smokers to be a step toward making tobacco/smoking illegal, because that is not what it’s about. The money can’t be collected from dead people, either, so figure that one out.

      • iio

        Great point and that’s why I suggest that we no longer use the word TAX for this, it’s more a of FINE. Taxes don’t change behavior, but fines do, or at least they are meant to which is why I keep getting fined for speeding. =)

    • Jkat

      but being a dui is very lethal whether one enjoys it or not, i dont think that u have quite grasped the point of the initial idea of a fat tax. it is not to stop people from doing things they enjoy but other people dont like… it was just one possible way to wake up the nation, increase revenue for healthcare and maybe even subsidies for whole foods… though i do agree that fat taxes are just not the way to go about raising these funds…. it is a tax that depends on people buying the very sinful thing that the tax is trying to prevent being bought by consumers.

  • Ashley

    I’m against it, because I weigh 102lbs I am 19 years old and under weight about 20lbs. I need the high calorie foods, because I am trying to gain weight. Anybody who has an illness that caused them to loos weight need high calorie foods. I was in a severe depression and I could not eat anything. All I drank was shakes and soda. This law is unrealistic and unnacceptable

  • Katelyn

    Great idea to tax fatty foods. I am writing an argumentative paper on this topic and I am all for it. Your facts help me get to where i want to be. And just because the foods are higher taxed doesn’t mean you can’t buy them. Cigarettes go up in taxes frequently and Americans find a way to purchase them. Therefore, Americans will come up with a way to buy the fattty foods if they really want to remain unhealthy. But the fact that raising these taxes will decrease obesity in America and save nearly 3000 lives a year is great. Tax fatty foods!

  • Dan

    Yes we need a fat tax. I don’t want to hear about how it would be discrimination either. If that was the case why weren’t these same people crying about the tax hike on cigarettes! We live in a screwed up world.
    I don’t want your second hand smoke in my face because it will shorten my life, when your stuffing your face with fatty fast foods that will kill you, but that’s ok. Grow up people! You can’t have it both ways.
    When I buy a pack of cigarettes I pay my share of taxes that will pay for my health care down the road, unlike the the fat people that don’t pay any tax on their fatty foods and don’t pay anything to health care for them down the road and then want me a, smoker to have to pay their bills too. Give me a brake. And you wonder why people call Americans dumb!

  • not given

    First take all sales taxes off food, (not ready to eat deli or restaurant food,) then put a VAT tax on everything that is done to it. That would make fresh and some frozen foods cheaper than highly processed foods. It wouldn’t just be a tax on putting something in can or box it would be putting a tax on each and every ingredient that is added to the finished product plus the tax on putting it in the can. The consumer pays no tax directly on food, but the healthier alternatives would end up more affordable and most of the crap on the shelves would be more expensive. Even a lot of the crap fast food restaurants sell would be higher, since so much of it comes already made and just needs to be fried or nuked, plus they would still be collecting sales taxes, too.
    The effect would be more people eating real food and staying healthy longer and the tax can pay for the health care costs for when people eat too much crap and lose their health. Everybody has to eat something. Of course, the ConAgra/General Mills, etc would scream bloody murder.

  • guessurrong

    Fat tax is another poor tax like the lottery…

  • http://pulse.yahoo.com/_5253I6VKLGLQE5AUUQ3OM4EESI Calico D'Nikonian

    I’ve often heard some whine, “I don’t want to pay taxes for someone else’s lifestyle (over-eating, poor dietary choices, etc) but, first, we don’t get to make choices in politically motivated decisions on where our tax dollars are spent; secondly, our taxes contribute to the common good of all (example, I don’t have school age children but just as others paid taxes that enabled me to get an education, it is now my turn to, likewise, pay taxes to enable other children to get an education, which would, ultimately, contribute to the general welfare of our nation). The question that should be asked is, Why tax at all? Once a tax is imposed, removing would require opposing political factions to come together, and that would require cooperation of intergalactic proportions. The more healthy taxpayers we have, the less need (or greater demagogic efforts) to keep said tax(es) down, or need to raise said tax(es). Said tax would interfere with individual choices, and, ultimately, over-burden low-wage earners, the poor, the destitute and the disabled that cannot afford to buy or go to places that sell fresh, healthy food items and must resort to buying canned foods (fruits, vegetables, fruit/vegetable drinks, tomato products such as ketchup or tomato sauce, white flour products, etc) that are easy to store but are sweetened and/or condensed with High Fructose Corn Start Syrup, KNOWN by the scientific community to inhibit the body’s ability to metabolize sugars, and causes fatty cells to accumulate around the mid-section of the body. Education of consumers is a more practical, pragmatic and viable alternative to legislating taxes that will never go away, and are often hiked for political agendas.

  • http://pulse.yahoo.com/_5253I6VKLGLQE5AUUQ3OM4EESI Calico D'Nikonian

    The issue of cigarettes comes up often enough. But, cigarette purchases are deceiving; people are now resorting to buy non-taxed cigarettes, that has brought about a totally new kind of “criminal,” akin to the Prohibition Era Bootleg criminals. IF, as we’ve all heard often enough, cigarettes are “bad” for our health (cancer, pulmonary and/or coronary diseases, etc), and are so overly taxed in some states… and our government spends BILLIONS of dollars yearly with ads on billboards and print media, TV ads, etc., condemning tobacco products, why do our elected officials allow and often subsidize tobacco rich growers and manufacturers of cigarettes here in the USA and the sales worldwide that often target the poor and the young, condemning consumers to the same ills they decry? It is non-sequitur, oxymoronic and absurdly ridiculous. The same with the fat tax, why should we be taxed when it’s easier to legislate against the very foods that are killing millions worldwide?

  • http://profile.yahoo.com/AOYHU3L7HXCWOSOC73ODU6Q2RE Chris

    This maybe would be a good option, but first how about ending subsidies to the suppliers / manufactures etc. i e corn mega-farms which fuel the junk food dilemma

  • Fat drinking smoker

    Drinking, smoking and obesity are all freedom-choces an individual makes for there life-style. And, as good honest citizens, they may, or may not, make TAX contributions
    to the country,.. depending on their work status/illness… Ignorng! political corruption – which costs the TAX-PAYER £100-BILLION in the E.U. alone – I would say these three
    classes of people can be safely eliminated from any financial equations…Unlike ALL
    governmental bodies which operate a TWO-WALLET greed
    Making these people STOP what they are doing is just the same as making every-
    one queer… They would ALL die-out within one generation…

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