Smoking and Obesity
Maryland is on track to be to obesity what Kentucky is to tobacco
Kenneth R. Stanton and Zoltan Acs
It is no surprise that big business will do its level best to strong-arm legislators. Kentucky had a large stake in the tobacco industry and it lagged far behind other states in implementing laws to discourage smoking. In spite of the health damage caused by smoking, tobacco production employed a large fraction of Kentucky’s labor force and nothing makes politicians weak in the knees faster than potential increases in unemployment figures. Smoking kills, but health damage is easier to ignore than unemployed voters. Although most states are implementing even stronger anti-smoking legislation, Kentucky only recently passed legislation that prohibits smoking in restaurants.
Obesity is also a serious health problem that can be addressed by state legislatures. Increased consumption of snack foods and other highly processed foods is undeniably a major factor in the national obesity epidemic and raising the effective price of such foods by adding in a tax, is one possible route to reducing obesity prevalence. In Maryland, the outcome paralleled Kentucky’s experience with tobacco. The state’s proposed snack tax was abandoned when Frito-Lay threatened to scale back or eliminate its Harford County operations if the tax became enacted. The politicians mistakenly calculated that if the threat became reality, the result would be a net loss to Maryland, disproportionately felt in Harford County. The snack tax may have been conceived as just another cash grab, but this particular tax proposal could have served a higher purpose.
Whether the politicians recognized it or not, this tax would have reduced the sales of unhealthy foods. That is an appropriate first step toward reducing the growth in obesity prevalence and, in the long run, it may have saved taxpayers far more than any potential loss resulting from Frito-Lay shuffling off to Pennsylvania or Virginia. Harford County’s officials made a big mistake when they lobbied Annapolis to stop this tax proposal.
The obesity problem is already expensive and has the potential to become a major economic crisis. Current estimates of the costs of obesity exceed $200 billion. This is probably conservative given the difficulty of estimating the indirect costs that result from productivity reductions—from more lost workdays due to reduced health quality, higher frequencies of injury, or other effects resulting from excess weight. It is only wishful thinking that we will all come to our collective senses, eat sensibly, exercise more, and the obesity problem will go away overnight. Sadly, surging childhood obesity rates signal that if we ignore the seriousness of this issue, it will continue to worsen at an accelerating pace.
It is not transparently clear that choices of diet and exercise ought to be left entirely to the individual without any role for the influence of taxes or regulatory impediments. The productivity losses associated with excess weight affect the economy as a whole. And, since more than half of the medical costs associated with obesity are borne by Medicare and Medicaid, there should be no doubt that the taxpayer is ultimately picking up most of the tab for the damage done by unhealthy foods. Medicare is already facing the prospect of insolvency within 15 years; the additional burden of obesity related illnesses is increasingly making the situation worse. The combined health and economic consequences of obesity are sufficiently severe that legislative intervention is justified and should not be derailed by corporate blackmail.
The seriousness of the obesity problem has not escaped the federal government. The U.S. Department of Health and Human Services, as part of its Healthy People 2010 initiative, has set a target of lowering the prevalence of obesity to 15 percent. To provide some perspective, year 2004 estimates—projected from the 1999-2000 National Health and Nutrition Examination Study—place obesity prevalence among American adults in the range of 35 percent.
One of the underlying causes of the obesity epidemic is that food prices are too low. In particular, the prices of highly processed, less healthy foods encourage consumers to eat more than they should, and to favor the very types of foods that increase the risk of obesity and associated health problems. Snack foods fall into this category and vending machines filled with these products are rightfully facing the prospect of being evicted from our schools.
What are the appropriate means of addressing this problem? Although not the only available tool, placing taxes on products that generate costs to society in excess of the purchase price should not be contentious. Arguments against sin taxes on tobacco or alcoholic beverages, for example, gain little political traction. Although the principles are the same, taxes placed on undesirable foods pose slightly greater challenges. Deciding which foods are deserving of the tax and which are not will be made even more difficult by the inevitable lobbying and arm twisting efforts of the manufacturers of the target products, just as we witnessed in the Frito-Lay case. However, as we discovered, there are additional perils that legislators are likely to encounter. Placing taxes on specific food items will not only pit businesses against legislators, but legislators against other legislators as the motives of different levels of government come into conflict.
Understanding how Frito-Lay managed to get Harford County’s politicians to go to Annapolis and fight against the tax is easy. Frito-Lay pays state, county and local taxes of $6.5 million, and its local payroll is more than $15 million per year. The benefits are heavily concentrated in Harford County. On the other hand, the snack tax was expected to pull $16.5 million out of consumers’ pockets statewide. Not surprisingly, this presented Frito-Lay with a big stick to wave at county leaders.
This is a serious concern. Is it appropriate for legislators to focus only on the potential profits going to vocal constituents and disregard the social costs generated by their products? Tobacco companies also paid sizeable taxes and employed large numbers of people. Selling unhealthy products is frequently quite profitable, but when the total bill comes in for all of the damages, taxpayers are going to be very unhappy with the Annapolis decision to kill this proposal.
This returns us to the central problem of finding a means of controlling the obesity epidemic. If outcomes at the state level are any indicator, there is little cause for optimism that the national initiative to reduce obesity prevalence will be successful. State and local governments are too vulnerable to bullying by corporations that stand to profit from the status quo. The threat to move to another tax district is serious and credible. And, the negative impact that the products have on the country as whole will not enter the affected tax district’s analysis.
This argues for federal legislation to control unhealthy or harmful products. At the national level, the corporate threat to pull out is empty. It is crucial that quick action is taken to control obesity—especially in children—in order to stave off the potentially disastrous consequences of a severe obesity crisis. If the federal government does not take a leading role, then corporations will protect their own interests by threatening the revenues of state and local governments. We cannot afford to let this continue.
Kenneth R. Stanton is an assistant professor of finance and Zoltan Acs is a professor of economics at the Merrick School of Business. Dr. Stanton and Dr. Acs co-chair the interdisciplinary obesity research group at the University of Baltimore.