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Fat Tax Won't Cut Government Bloat

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As waistlines around the world bulge, there is an abiding grassroots advocacy for government to do something -- anything! -- to fix the obesity crisis. Imposing a fat tax on foods, specifically sugary drinks, is one politically fashionable idea. Now a number of provinces are poised to introduce legislation that would tax sugary beverages in the hopes that this step will stem the tide of weight gain and add more revenues to dwindling budgets. Since beverage drinks are sometimes codified in existing legislation, it is politically expedient to tax them.

As a measure to increase general revenues, this strategy may work. As a strategy to reduce the severe chronic illness and huge financial costs associated with obesity, it will fail to accomplish anything -- except expanding the power of bureaucrats.

Today, "sin tax" advocates across the West now have an added weapon in their quiver of arguments: Denmark has imposed a tax on all foods with more than 2.3 percent of saturated fat, and it is always easier to introduce a policy that's been done somewhere else. To be fair, Denmark didn't make the logic error of singling out one food group or beverage as the cause of expanding waistlines. But the tax is so insignificant that it will do nothing to constrain unhealthy eating habits.

Many advocates of a sin tax on sugary drinks bristle with confidence; they have no doubt as to why we get fat -- too much "bad stuff" -- and the way to get us to behave is to punish both consumers and producers of products that make us fat. Is the public on their side? Advocates point to surveys that suggest strong support for their position. But surveys are notoriously unreliable -- subject to "social desirability bias" (answering in the politically correct fashion) -- when it comes to issues of taxation for public health reasons. Ask former New York State governor David Paterson who had to withdraw legislation to raise taxes on soft drinks when public opinion turned against him (and when the data showed his tax plan would hurt the poor).

Consumers will say one thing to a pollster when nothing is at stake, but they'll react differently when they become taxpayers.

As much as junk food tax advocates want to believe studies that show a strong colinear positive association between consumption of sugary drinks and obesity, things are not that clear. First, obesity is stung by complexity; we are all challenged by individual issues when it comes to weight gain. If you have a loved one who is obese, you will know that taxing pizza and potato chips will accomplish little. A multitude of factors, a complex interplay of genetic and cultural variables, can drive us to weight gain.

Further, we suspect a "white hat bias" exists in the findings of publicly funded researchers that tends to skew research in a politically fashionable policy direction. The increasing number of funded studies devoted to investigating the policy benefits of sin taxes -- despite recent work of the UK Foresight Commission and others showing the irrefutable complexity of influences upon maintaining healthy weights -- suggests that such a funding bias may exist.

Economic modelling studies are varied when it comes to drawing a straight line between higher taxes and lowering obesity levels. We do know that small taxes on soft drinks are all but useless in changing behaviour, but large taxes in the range of 50 per cent or more might only push drinkers to substitute one bad product for another unhealthy one. People have a way of frustrating policy intentions. Most economic studies that measure the impact of a tax on consumption levels are based on elasticity estimates in simulated models (not with real people) that don't always take into account on how we substitute one good for another.

If taxes are set at exorbitantly high levels -- 100 per cent -- then some people will make marginal occasional exchange for, say, milk instead of sugary drinks. And under this far-fetched scenario -- where food producers would launch lawsuits claiming commercial discrimination and unconstitutionality (and your tax dollars would be forced to defend against them) -- the poor would suffer financially.

What we do know is that the cause of obesity and weight gain since the 1970s is a much more complicated affair than we once thought. Due to "availability bias" -- we all like to fit our preferred arguments into the toolbox we're familiar with -- an economist may tell you that the culprit for obesity is lower food costs for all income earners; a medical researcher may blame a range of genetic factors; an urban planner will make the case that we're fat due to how we design our cities; a sociologist may find an answer in our sedentary life style. Psychologists will tell us that depression is a dominant factor or our toxic relationships are to blame. All of these explanations enjoy some credibility, but as a standalone explanation, they fail.

In the midst of such complexity, what is a well-intentioned policy maker to do?

Politicians are always on the hunt for that silver bullet that will make us change our behaviour. It's not so easy. To make any policy work -- with taxpayer dollars -- we should enjoy good confidence that the outcomes we hope for will materialize and, secondly, that government enjoys the tools to ensure the policy materializes as expected. On both counts, taxing sugary foods fails. As in Denmark, for example, people behaved rationally by hoarding fatty foods in advance of the implementation of the tax. And, more important, the only benefit: Denmark will be seen by the world to be doing "something" about obesity.

Advocates of sin taxes often point to how taxes worked to discourage smoking rates. If taxes can work there, they suggest, it can work on junk food. But smoking rates started falling before higher taxes kicked in and can be traced to the U.S. Surgeon General's warnings in the 1960s. Taxes played a role, no doubt, but smoking had external costs to the user that society wouldn't put up with any longer. Even smokers didn't put up much of a fight.

We have to reboot our brains so we know how to eat and take care of ourselves better. And that takes time, and no government policy will change that overnight -- or even over several years. We need to embrace private sector policy innovation -- pilot projects in multiple areas with multiple income groups -- which experiment to determine, for example, the behavioural benefits and pitfalls of taxes versus subsidies versus vouchers. Experimentation, and sober evaluation, should precede the well-intentioned sense and immediacy of being seen to do something.

Neil Seeman is co-author, with Patrick Luciani, of XXL: Obesity and the Limits of Shame.