We can’t tax our way to better health

Last month, the Ontario Medical Association called for taxes and regulations on “unhealthy” foods to fight obesity. It’s a popular idea in public-health circles. At a time when we collectively seem less healthy, governments could try to micromanage our diet, picking winners and losers — literally — from the dinner table.

If that sounds ambitious, Denmark has discovered it is. Last week, the government announced that it is scrapping a tax on foods heavy in saturated fats. The Danes dumped the Twinkie tax with good reason: It’s expensive to administer and seems to have done nothing but promote cross-border shopping.

No surprise here, really. Though obesity is an issue, it seems unlikely that we could easily tax our way to better health. But, on this side of the Atlantic, many are calling for a soda tax, or a tax on soft drinks and other sweetened beverages. Count New York Mayor Michael Bloomberg as a supporter, as well as Canadian economist Mike Moffatt.

Will we see a soda tax in Canada? In early 2012, a spokesperson for Federal Health Minister Leona Aglukkaq rejected the idea of a Canada-wide soda tax. Still, a Public Health Agency of Canada poll released this year found that 40% of Canadians would support a soda tax if funds raised were used to fight childhood obesity. 

For such a tax to have an impact, a given increase in price has to lead to an appreciable fall in the overall quantity of soda demanded by consumers, which must in turn lead to population-wide weight loss. This is the basic assumption of soda tax proponents.

A study by the U.S. Department of Agriculture projects an average weight loss of roughly four pounds over a year from a 20% soda tax. A 2012 estimate in Health Affairs projects that a smaller tax should lead to enough weight loss to extend 26,000 lives over a 10-year period. 

Remarkable — but not credible. These projections have been disputed by other researchers because they are too broad and are based on methodologically weak assumptions. In a Lancet article, researchers explain that public-health advocates usually overstate the potential weight-loss estimates from anti-obesity policy interventions because they rarely take into account the fact that a person’s metabolism will adjust to minor reductions in calorie intake. 

However, optimistic assumptions are not the main problem with these scenarios. Several limitations make soda taxes a poor policy choice.

First, taxing sugary drinks in a consistent and thoughtful way is next to impossible. Canadians get less than 2.5% of their calories from soft drinks. In most age and gender categories, Canadian adults consume more coffee or beer than soft drinks. However, a large coffee — not taxed because by itself it contains few calories — to which you add two creams and two sugars contains as many calories as a 591 ml bottle of Coca-Cola.

Even if we wanted to broaden the scope of the tax, it would be difficult to target the right types of drink. Taxing the manufacturing of all sweetened drinks would also capture non-carbonated drinks, including flavoured milks, sweetened teas, fruit smoothies or otherwise healthy juices like sweetened cranberry juice. Beverages that contain essential nutrients (including calcium, vitamin C and vitamin E) would be taxed.

Another crucial problem is the fact that, all other things being equal, a consumer who is only encouraged to cut soda calories is likely to replace them with other foods and beverages and perhaps eat more of those — a phenomenon known as “calorific substitution.”

Researchers found that each additional 1% increase in soft-drink tax rates imposed by several U.S. states led “to a decrease in body mass index (BMI) of 0.003 points” — basically a rounding error. Even a very large tax increase might therefore have no perceivable effect. One reason is that in certain situations, the reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks.

The point is not that we should accept obesity rates — Canadians weigh too much. But as any doctor knows, sometimes a simple prescription may end up doing more harm than good. Canadians don’t need a soda tax or a Danish-style Twinkie tax. We need an honest discussion of these issues.

David Gratzer est senior fellow à l'Institut économique de Montréal. Il signe ce texte à titre personnel.