States Eye Taxes on Sweets, but Research Says to Expect Sour Results

States Eye Taxes on Sweets, but Research Says to Expect Sour Results
November 15, 2011

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

States are increasingly extending higher tax rates to products such as candy and soda, ostensibly to fight obesity, but such moves are unlikely to have an impact on obesity rates and health outcomes, according to a new study by the Tax Foundation.

Instead, the taxes will create a complex and confusing classification system dividing the "good" food and drink products from the allegedly "bad" ones, says Tax Foundation analyst Scott Drenkard, author of the report.

"While reducing obesity-related health problems is a worthy goal, adding an additional tax burden to particular food and beverage categories is a clumsy and inefficient strategy," said Drenkard. "Obesity taxes fall on all consumers, including those who consume candy and soda in moderation and have no weight-related health issues."

Drenkard notes 17 states tax candy at a higher rate than other groceries, while four states collect a special excise tax on soda.

In 2011, 14 more states proposed new soda taxes and two states proposed new candy taxes. Some of the soda tax proposals would have raised prices as much as 264 percent.

No Impact on Obesity

Drenkard said higher taxes likely would have little or no impact on obesity rates. Recent studies suggest even when selective taxes on certain food products do cause individuals to consume less, those same people replace the calories avoided with other foods, resulting in no net decrease in caloric intake.

In addition to questions about the effectiveness of reducing obesity rates, the systems already in place for taxing candy and soda illustrate the unexpected difficulties in deciding what does and what does not count as candy and even soda. Chocolate bars that include any kind of flour, for example, generally do not meet the legal definition of candy.

Drenkard notes under the Streamlined Sales Tax Project, in which 44 states are trying to standardize the collection of sales taxes so they may be collected on Internet sales anywhere in the country, Milky Way and Milky Way Midnight candy bars would be taxed differently because one has flour and the other does not. The SSTP takes six pages to explain what candy is and clarify the definition of flour.

‘Definitional Contortions’

“These definitional contortions are necessary only because states treat products differently for sales tax purposes,” Drenkard writes in his report. “Once a state has decided to treat candy differently from other groceries or other goods and services, this necessitates complex definitions and unequal treatment of specific products. Taxing all final retail sales equally and reducing rates overall could avoid these issues.”

"The solution to the obesity problem will not come from government authorities picking out a handful of products to saddle with extra taxes," said Drenkard. "Consumers need to be free to make prudent decisions about their own diets and health needs without lawmakers trying to stack the deck in one direction or another."

Penalizing the Healthy

Drenkard points out many people who are not obese but enjoy these sweet treats would be penalized for consuming them by having to pay higher taxes.

“Plenty of people use these products without becoming obese,” Drenkard said. “We don’t want punish those people.”

There is also dispute over how bad the obesity problem is. The body mass index used to identify obesity is based on a person’s height and weight and does not distinguish between fat and muscle, so even some top athletes would be considered obese because of the muscle they carry, Drenkard notes.

He also said research shows there likely will be unintended consequences if candy and soda taxes spread. For instance, if taxes on soda rise, soda makers may be tempted to market “super sodas” with higher levels of sugar, caffeine, or other ingredients to give buyers “more bang for the buck.”

“It seems equally likely that servings would get smaller and more concentrated to avoid taxation on a per-ounce basis. Energy drinks would likely become more popular,” he writes.

Internet Info

“Overreaching on Obesity: Governments Consider New Taxes on Soda and Candy,” Tax Foundation: http://heartland.org/policy-documents/overreaching-obesity-governments-consider-new-taxes-soda-and-candy

 

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)