Taxing for health


Taxing products that harm health has long been part of the public health’s armamentarium to reduce the impact of harmful corporate practices. As the global economic crisis continues and the austerity mentality feeds government hunger for new sources of support, politicians look for   streams of   revenue that can win public support.    Recent media coverage of several political debates about taxes designed to promote health illustrate the potential and pitfalls of this strategy.


In France, the new socialist government has proposed a new tax on beer that would increase the price of a half pint of beer by six cents.  According to the New York Times, the government offers a public health rationale for the beer tax. There has been an “excessive alcoholization, in particular of youth, with beer more than with wine,” said Jérôme Cahuzac, the budget minister. French beer taxes are among the lowest in the 27-state European Union, he noted, and the scheduled increase would leave them only the 10th highest, lower than in Britain, Spain and the Netherlands.


The Socialist government has also said it will increase the value-added tax, a type of consumption tax, in several sectors of the food industry, including restaurant meals, to 10 percent from 7 percent, partly reversing a reduction made by the previous center-right government.  In addition, France’s social security budget, which is in the final stages of the legislative process, also includes heavier taxes on tobacco and new ones on energy drinks. Proposed new taxes total about $30 billion; the increase in the beer tax is expected to generate an additional $625 million.


Not surprisingly, bar owners oppose the new tax, fearing it will cut their business.  Others complain that the tax increase is just on beer, not wine, an important sector of the national economy. One supporter of the bill, Even Gérard Bapt, a Socialist legislator, expressed the opinion that the “increase would have to be much more significant to have a real moderating effect on consumption.”


While the socialist government in France is proposing new consumption taxes,  Danish lawmakers from the center-right party  earlier this month have killed a controversial “fat tax” one year after its implementation, reports the Wall Street Journal.  They acted after deciding its negative effect on the economy and the strain it has put on small businesses outweighed the health benefits.


The new tax led to increases of up to 9 percent on products such as butter, oil, sausage, cheese and cream. “What made consumers upset was probably that an extra tax was put on a natural ingredient,” Sinne Smed, a professor at the Institute of Food and Resource Economics in Copenhagen, told the Journal.


The fat tax brought an estimated $216 million in 2012 in new revenue.  To make up for the lost revenue, Danish lawmakers will raise income taxes slightly and reduce personal tax deductions. The lawmakers also reversed an earlier decision to create a sugar tax. The fat tax was created in 2011 to address Denmark’s rising obesity rates and relatively low life expectancy. There is little evidence the tax impacted consumers financially, reports the Journal,  but it did spark a shift in consumer habits. Many Danes have bought lower-cost alternatives, or in some cases hopped the border to Germany, where prices are roughly 20% lower, or to Sweden.


In a commentary in the New Scientist on the repeal of Denmark’s fat tax Marion Nestle, the New York University nutritionist, disputed the contention that Denmark’s decision was based on health:


Nobody likes taxes, and the fat tax was especially unpopular among Danish consumers, who resented having to pay more for butter, dairy products and meats – foods naturally high in fat. But the real reason for the repeal was to appease business interests. The ministry of taxation’s rationale was that the levy on fatty foods raised the costs of doing business, put Danish jobs at risk and drove customers to buy food in Sweden and Germany…. Governments must decide whether they want to bear the political consequences of putting health before business interests. The Danish government cast a clear vote for business.  At some point, governments will need to find ways to make food firms responsible for the health problems their products cause. When they do, we are likely to see immediate improvements in food quality and health. Let’s hope this happens soon.




Another approach to public health taxes has been suggested by outgoing Ohio Congressman Dennis Kucinich. He has proposed a bill HR 4310 End The Childhood Obesity Subsidy Act that would prohibit any company from claiming a tax deduction for the expense of marketing that is directed at children “to promote the consumption of food at fast food restaurants or of food of poor nutritional quality.”  In a November press release and video, Kucinich argues:


According to the Institute of Medicine, ‘Aggressive marketing of high-calorie foods to children and adolescents has been identified as one of the major contributors to childhood obesity.’ We can end this tax break, improve our kids’ health and reduce our nation’s debt all at the same time. It’s time to stop subsidizing the childhood obesity epidemic.


Under current law, the federal tax code allows companies to deduct “reasonable and necessary” expenses of marketing and advertising from their income taxes. Fast food marketers get the same break that other businesses do.


So what do these three recent stories from different parts of the world tell us about the use of taxation to promote health and end harmful corporate practices?


First, taxes on products that harm health will always generate intense opposition from a variety of business interests, from local retailers to the world’s largest corporations.  Advocates who propose such taxes better expect such opposition and be ready to counter it. 


Second, finding the balance between a level of taxation that will actually discourage use and one that is politically feasible in a particular context requires scientific analysis of the available literature and political analysis of the opportunities and constraints.  A May 2012 review in the British Medical Journal concluded that


Taxes on unhealthy food and drinks would need to be at least 20% to have a significant effect on diet-related conditions such as obesity and heart disease. Ideally, this should be combined with subsidies on healthy foods such as fruit and vegetables, they add.


Advocates need to assess the potential for achieving health goals with a proposed tax and consider the pros and cons of a variety of alternative strategies before deciding to pursue the tax route.


Finally, as Kucinich’s proposal suggests, changing the tax code to promote health is not limited to taxes that lead to direct increases in consumer prices.   Dozens of corporate subsidies enable low prices for unhealthy products and supporting changes in taxation that limit these subsidies may offer promoting political opportunities for discouraging harmful corporate practices.  Given the key role that marketing plays in promoting unhealthy behaviors, environments and lifestyles, a closer analysis of tax subsidies for advertising that harms health seems warranted.