Home > Guest Post > !Obesity: Taxes In and Taxes Out

!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.

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. I don’t know if it would make a difference in people’s spending. I thought that people would quit smoking when cigarettes got so expensive but they certainly haven’t! I live in a huge smoking state and there are a lot of fat people here too. Double whammy.
    I don’t think that the tax is a bad idea, though. Maybe they could raise funds through taxes to help fight obesity related illness?

    • Yes – cigarettes and alcohol are described as “price inelastic” which basically means that no matter how expensive they get, people will still buy them in large quantities. That said, one of the benefits is how that makes them a good source of government revenue. There are also some people who change their behaviour, though not as many as if it were say an outrageous tax on only apples.

  2. I don’t agree with taxing “bad stuff” because I’m much too libertarian to ever agree with giving government the power to cherry pick the good and the bad. Look at the drug war – they fully allow alcohol to be widely available, but will throw you in prison if you use marijuana peacefully at home, even if it is for medicinal reasons! I am just very opposed to this sort of taxation and I think suppliers shouldn’t be hit for people making bad decisions.

  3. I like having choices and don’t think anything should be heavily taxed because people are too dumb to make the right choice. Yes, soda is bad. One soda per week is not. If I want to drink my weekly soda, I have to pay a tax too. Can we all have a special chip inserted by the government deciding on what kind of decisions we are able to make and priced accordingly?

    • Ohhh, government tracking chips? Haha. Part of the generalization to taxing “bad” things is that it means less taxation of “good things.” For example, income taxes discourage working (only by a little bit, but the same as ten cents on a can of Coke only discourages by a little bit). So when I say I support taxing “bads” it’s instead of good things like working for income, not just apples.

  4. I totally agree on the ‘airfare’ thing. It annoys me to not have the taxes easily presented right when purchasing.

    Like Holly, I’m also not sure if it will make a huge difference to tax the bad things. I don’t think the majority of people will stop buying them, but it could bring in some extra money for the government. But basically I agree with Pauline above. Its getting pretty ridiculous how much the government is involved in our lives. I prefer less government (If anyone cared :))

    • There seem to be a lot of libertarians around these parts 🙂
      I should have laid out what “goods” and “bads” were a tad more clearly… income taxes are an example of taxing “goods” because, even though it’s only a little bit, they discourage work.
      I don’t know how much of an effect a soda-tax would actually have, it is probably fairly inelastic (like cigarettes and alcohol), so consumption probably wouldn’t change very much.

  5. Nice post. One thing I do need to point out though, is the issue in NYC is not the soda being taxed but simply not being able to buy sodas over 16 ounces at many places, which is a different issue.

    I would tend to agree with DC that taxing the “bad stuff” is not a solution. People are going to drink 10 sodas a day regardless of what they pay for it because they’re either addicted or they simply don’t care. I think if we want change in this we need to not make soda so readily available. Get the machines out of schools and the like and put pressure on the companies to find other products to sell or find tastier alternatives to the diet sodas like Coke Zero as an example.

    • I would add that parents have a huge responsibility. I don’t think you should deprive your kids of sugary items, but allow in moderation. I also don’t think you ever need to give a kid soda until they understand that it is different from other drinks. As kids, we had soda and sweet tea from birth I think! It was just what you drank in the South. I also see babies with soda in their bottles. Who is that helping? Maybe it’s cheaper than formula, but come on. We didn’t let our daughter have Sprite or Lemonade type drinks until she was 5. They are a treat when we go out to eat. I actually offered her a taste of a regular brown colored soda the other day and she said it was yucky. If you just grow up having non nutritive foods all the time, it’s hard to ever know any different.

      • Soda in bottles?!!!! Yikes!
        I grew up in an ‘everything in moderation’ household as well and it seems to have served me well.

      • I could not agree more Kim, parents do have a huge part (if not all) of the responsibility early in life. We don’t allow our children to have soda, other than maybe a sip or two when we might have one. We also are very restrictive in giving them juice. Juice is great and all, but many can be packed with sugar. If we give them juice, we’ll water it down so it’s diluted.

        You bring up a great point of what you learn early in life can led you to not knowing any better later in life. My wife and I see that ourselves as she was raised by health nut parents and mine were on the other extreme. It took some flexibility on both of our parts, but in the end wanting to focus on a healthy well balanced diet while allowing to have something fun within reason.

    • I should have been a bit more clear, “bad stuff” isn’t just the difference between coke and apples, it includes carbon emissions and such. Good things include saving and low income taxes (as higher ones discourage working, which is generally-speaking good for both the economy and society).
      I agree that it is not a solution, it is just a small piece of a puzzle and one that allows government to cover their expenditures. There are so, so many factors at play. You mention several other pieces that I agree would be good. We only had juice machines in elementary schools and even those have been given the axe, due to being sugary drinks and encouraging people from buying things from vending machines!

  6. I think if taxes were shown directly then it would most likely slightly affect my spending, especially with big purchases.

    • Agreed, just that tiny bit of change to our spending decisions. Plus, it would make life so much easier, not keeping weird running tallies in your head when shopping! One of my pet peeves is the airline one… you really have no idea what the actual cost is going to look like!

  7. Well Id ont’ know what I think about the government telling me what I can and cannot eat by taxing me; but I can say this — the idea of the “what you will actually pay” price being on labels sounds AWESOME.It would be so much easier!

  8. I don’t believe in levying more taxes on certain goods, but I do support the disclosure of sales tax in the final sticker price. I don’t understand why we don’t do this now, though have a feeling there are greater forces behind the scenes that stop that from happening. Maybe I’m dead wrong. Someone please explain 🙂

    • I can only explain for Canada, sorry! It basically comes down to taxation jurisdiction. I suspect it’s the same thing in the states, the Feds only have so much jurisdiction, so they can’t tell the states and municipalities what to do. That’s what it is in Canada. There are collection agreements and whatnot that allow federal sales taxes to be collected provincially. I wish that the Feds required their portion to be included, as the provinces might follow suit then.

    • I think it’s probably up to the vendors. Why are so many things $9.99 instead of $10, because mentally, it seems cheaper. It would not be hard to spit out the after tax price,it’s all computer generated, but it might make people buy less.

  9. I agree that the final price should be shown. I also agree with taxing bad things like tabacco. If some of our taxes end up going to pay for healthcare bills then let those who use it pay some of the tax. I know this is a very generalized statement and there are far more details we aren’t aware of. I’m still a fan of taxing things that are bad for us.

  10. Mandy @ MoneyMasterMom

    I agree that taxes should be included in the sticker price. It’s hard to know what is taxed and what isn’t when it comes to food – I know items deemed to be essential are not taxed. It has always irritated me that given that description that feminine products are taxed.

    • Haha – so true! It is definitely confusing in Canada. Did you know that there is GST on 5 muffins but not on 6? That was the cut off point determined as “consuming right away” not “family groceries.” There are SO MANY intricacies in taxation.

  11. 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?

    • 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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