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Is A Fat Tax A Legitimate Source of Tax Revenue?

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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.

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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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