!Obesity: Taxes In and Taxes Out

Today I am blog swapping with Anne at Unique Gifter. After you read this excellent post, click over to her site to get my take on some unique gifts you might not have considered. If you would like to guest post or blog swap, contact me!

Recently, Kim wrote a post about obesity in the US and how it results in very high costs for everyone, due to preventable diseases and unnecessary health care costs.  One of the policy proposals floating around is the idea of taxing more unhealthy things, such as transfats or high fructose corn syrup.  My background is in economics, so I would like to talk a bit more about this idea.

Taxes are both a means of raising funds for government and a policy tool.  Taxes are often structured to encourage or discourage behavior.  For example, retirement savings have various tax breaks, while cigarettes are heavily taxed.  The purpose of a soda tax would be to discourage people from consuming things which are not good for them, as well as increase government revenues as a way to offset all the costs due to ill-health.  However, how effective would such a tax really be?

A hindrance to tax policy is that most places do not incorporate taxes into their prices.  From a business perspective, it makes sense to leave them out because you want to appear to have the lowest price.  Airfares are notorious for this, where the advertised price is a lot less than the final cost to the customer!  In my opinion, it is very unfortunate that sales taxes are not included in the sticker price.

If a soda tax was implemented, for example in NYC, how effective would it be if no one could tell it was there?  Nutritional science aside, in general, orange juice is a better choice than Coke.  Let’s say you walk into a store and see a can of orange juice for $0.95 sitting next to a can of Coke for $0.95.  If there was a 5% sales tax and a 10% soda tax, their true prices would be $1.00 vs $1.09.  A small difference on a single can, but one that means a case of OJ is $1.08 less than a case of Coke.

Believe it or not, this type of different taxation already exists!  Some countries, such as the United Kingdom, already include their VAT into sticker prices.  However, virtually everywhere in North America, the taxes are left out of the sticker price.  In Canada, virtually all basic, healthy food is not taxable, like produce and bread.  Things that can be “immediately consumed” do have taxes.  However, when presented with the option of buying a box of Oreos or a bunch of bananas, the price tags will not show that one is subject to taxes and the other is not.  I would love the basics of economics, that we buy fewer goods when they become more expensive, to help all of us keep our health in check!  To show some more examples of tax policy helping to support health, here is a short summary of how Australian GST applies to food:

Source: http://www.ato.gov.au/content/downloads/BUS18694n3338.pdf

In short – I am in favor of taxing the “bad things” in life but believe the results will be very watered down unless retailers show the final, true cost of goods right on the sticker.

Do you believe you would make difference purchasing decisions if you saw every price to the exact cent?

This is a guest post from Anne at Unique Gifter. Anne has collected a degree or two in the “dismal science” of economics.  She blogs about creative, unique and personalized gift ideas, including fun ways to give cash gifts.  You can follow her on twitter @UGifter.

Kim’s comments: Wow, Anne is multi-talented. She understands economics and knows the perfect gift for every occasion. I would love to see more taxes on junk foods, but she has a point about making them more transparent so people realize what they are paying for.

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Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of Snipon.com.

31 Comments

  1. Pingback: Friday recap 10
  2. I have mixed feelings on this… take gas taxes. Around here, the counties have different gas tax rates/gallon, and one county has taxes that are literally ~$0.10/gallon more in taxes than the next county over.
    I know this, so don’t fault the station owner in the more expensive county when his gas is $0.10 more per gallon, but I know a lot of people who do and call the gas stations in that county greedy, etc.

    Incorporating too many taxes into the final price can lead to people blaming the costs on the wrong entity. Does that make sense?

    1. Yes, it is much more complicated when taxes change county to county. That’s not the case in Canada, they only vary by province (with a few random ones like Destination Marketing Organization hotel taxes, but they are rare.) Gas prices are one of the only things around here that actually include all of the taxes, it’s weird (but good).
      It is usually in the interest of businesses to make their prices appear to be the lowest, especially when it is out of their control!

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