Forbes.

com - Magazine Article

Page 1 of 2

Business In The Beltway

Fat Tax Could Be Panacea For Health Reform

Brian Wingfield, 07.27.09, 6:58 PM ET WASHINGTON - One of the ways President Barack Obama hopes to reduce soaring health care costs is through the promotion of overall wellness. There's a related idea cooking in Washington: a fat tax. According to a study released Monday by experts at the Urban Institute and the University of Virginia, a 10% excise or sales tax on fattening foods could raise $522 billion over the next 10 years. A 20% tax could raise $937 billion. Among its other uses (like paying down the deficit), that money could be used to defray the costs of health care reform or to curb the rise in obesity. Unless consumption patterns change, 40% of American adults will be obese by 2015, the study says. Obesityrelated issues account for more than $200 billion in health care spending annually, it says. "If the single best deterrent is a tax, it seems like we've got to mention it," says one of the study's authors, Dr. Arthur Garson Jr., former dean at the University of Virginia's Medical School and currently the university's executive vice president and provost. On Capitol Hill, lawmakers remain flummoxed as they look for a politically palatable way to pay for health care reform, which is expected to cost around $1 trillion. There seems to be momentum in some quarters for a fat tax-or at least a soda tax--though that idea hasn't made it into the final version of any of the health care bills being seriously considered. Because of the stalemate over revenue raisers, both chambers of Congress will likely leave for August recess without passing a health care bill. That delay could be a boon for groups that want to quash any idea of a tax on unhealthy foods and drinks. The obvious suspect: Americans Against Food Taxes--a coalition of industry organizations that includes the National Restaurant Association, the American Beverage Association and the National Grocers Association, as well as individual companies such as Yum! Brands, Dr. Pepper Snapple Group and Domino's Pizza. The group, which formed earlier this month, is now waging a multimillion-dollar media campaign in the Washington, D.C., area to stomp out any thoughts of food or drink taxes. "This is no time for Congress to be adding taxes on the simple pleasures we all enjoy, like juice drinks and soda, but that's just what some in Congress are talking about," says one TV ad showing a happy family on a camping trip. "We all want to improve health care, but taxes never made anyone healthy. Education, exercise and balanced diets do that." Kevin Keane, senior vice president for the American Beverage Association, which is spearheading the group, says that such a tax on soda would be regressive (meaning it disproportionately affects lower income people) and that it would unfairly single out one product. In addition, he argues, the only two states with soda taxes on their books, West Virginia and Arkansas, have the fifth- and sixth-highest obesity rates in the country, respectively. The tax proposal is a major concern for the ABA's lobbyists--in 2009, the group has spent at least $1.34 million on lobbying, double the amount for all of 2008, according to the Center for Responsive Politics. However, lobbying aside, any effort to raise taxes on unhealthy foods and beverages is likely to face significant challenges. First among them: defining "unhealthy."

http://www.forbes.com/2009/07/27/fat-tax-healthcare-business-washington-obama_pr... 12/04/2010

Forbes.com - Magazine Article

Page 2 of 2

The Urban Institute-U.Va. study is based on a model used by the British government that uses a numerical scale to determine whether a food's vegetable content, fiber and protein outweigh its calories, saturated fat, salt and sugar. "Healthier" foods include pasta, grilled chicken breast and low-fat yogurt; "intermediate" foods are those like bran flakes, popcorn and whole milk. Soda, bacon, candies and cheeseburgers fall into the "less healthy" category. To help consumers identify them, unhealthy foods might be packaged with a red sticker; less healthy and healthy foods would receive yellow and green stickers, respectively--akin to a traffic light. However, another concern would involve implementing the tax itself. An excise tax, levied on producers, might be easy to administer, but it could obscure the costs to the consumer more than a sales tax would. Most states already have a sales tax infrastructure in place, but determining the tax on individual food items could be a nightmare for grocery stores, particularly small-time grocers. The authors of the Urban-U.Va. study also note that a tax on fattening foods would be regressive; however, they suggest that the revenue raised could be used to subsidize health care for the poor or to help them gain access to healthier foods. In addition, they say the government's efforts to limit Americans' tobacco use provide a good model to curb obesity. Expect the discussion to heat up as Congress wraps up its summer session in the next few days. By Aug. 8, the Senate Finance Committee will likely pass some type of health care bill. Whether it includes a tax on fattening foods remains to be seen. "What we're doing is saying, OK, America, consider an option," says Garson. "The public and the legislature are going to have to make the decision about whether they think this is a good option or not."

http://www.forbes.com/2009/07/27/fat-tax-healthcare-business-washington-obama_pr... 12/04/2010