The $70 Billion A Year American Obesity Tax

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No matter what legislation comes out of the frenzied health care debate, economists say that it will cost the American taxpayer a great deal. Estimates run the gamut from the Obama administration’s claim that it will be paid for by cuts on existing programs to the conservatives’ assertion that reform will cost us close to a trillion dollars over the next ten years. The public will probably spend several hundred billion dollars over the next decade or so to make the necessary changes that have been highlighted over the course of the debate, with or without the reform bill. Alternatively, the current rise in health care use will inflate national costs nearly as much as the price of any reform would.

A large number of the infirmities and chronic and fatal illnesses in the United States are based on behavior, rather than accidents or genetics. This is the reason we have a “sin tax” on tobacco and alcohol: to compensate the costs in the health care system for the damage these products do. One of the proposals to cover health care costs is to impose a  sin tax on the foods that increase the epidemic of obesity, diabetes, high blood pressure and heart attacks, and cost the health care system billions of dollars per annum.

24/7 Wall Street analyzed the four most dangerous ingredients in food (sugar, trans fat, saturated fat, and sodium) and estimated a sin tax for each of these. The tax could serve to curb consumption  of disease-causing substances and as a way to make those who make bad choices compensate the government and responsible citizens who have to pay higher insurance premiums. These proposals will have an enormous impact on the major producers and distributors of foods if Congress passes any of these measures. 24/7 Wall Street evaluated the companies that produce and distribute the foods and beverages that are likely to make people unhealthy. We analyzed the impact a sin tax would have on these 12 corporations and estimate the amount in taxes their products would produce for the government to be use to finance the health care reform.

Conclusion:

24/7 Wall Street estimates the government could collect $17.54 billion dollars each year from the four proposed sin taxes from these 12 companies that produce the most unhealthy substances in our foods. Making the reasonable assumption the 12 corporations comprise no more than ¼ of the total sales of sugar, salt, trans fat and saturated fat in the United States, this means the total collected sin tax each year will come to over $70 billion.

Trans Fats

The foods that are the absolute worst for people normally have some dietary function.  People need calories, cholesterol, and even fat in some measure. According to the USDA, the FDA, and most other nutritional guidelines, the only  substance or chemical commonly found in food that shouldn’t be eaten in any amount is trans fat.  It contributes to heart disease, obesity, increases “bad” cholesterol, and has no notable benefit whatsoever. Some studies have also linked transfats to Alzheimer’s, liver dysfunction, some forms of cancer, and infertility in women. It is effectively illegal in both Denmark and Switzerland to sell food products containing trans fat. In 2006, New York City banned restaurants from using anything greater than .5 grams per serving. Other major American cities, including Philadelphia and Chicago, have followed this example.

Using the NYC ban as a template, any food that contains .5 grams of trans fat or more is taxed 15% of the price.

1) Yum Brands – YUM owns a sizeable chunk of America’s secondary fast food chains with $10.8 billion in sales and nearly 350,000 employees. Almost all the trans fat Americans consume comes from artificially hydrogenated vegetable oils used in frying fast food, snack foods, and baked goods. Several of the biggest names on its roster rely especially heavily on fried food (KFC, A&W, Long John Silvers, and Taco Bell.) While you can find it in most fast food, deep-fried meat is one of the biggest ways we get trans fat into our systems.

Despite a portfolio entirely in fast food, Yum Brands owns KFC, which has a trans fat-free menu. However, their other major divisions – Long John Silvers and A&W – still have a menu full of items with 4-5 grams of the dangerous substance. Yum! had 3.7 billion in domestic sales last year. 24/7 Wall Street calculates the sin tax will yield $636 million each year from Yum! Products.

2) McDonald’s (MCD) – The largest fast food corporation in the world is also the target of health proponents and politicians. The chain has had many novels and several feature films made about  the health consequences of consuming their products. McDonald’s might be the single largest culprit for trans fat distribution in the United States with its $22 billion in revenue in the last year.

McDonald’s has begun to modify its menu, and the company’s french fries are now trans fat-free in the states. This evolution towards healthy foods doesn’t extend to most of the chain’s meat-containing products, and an extra 15% tax for some of the popular items may limit the popular “dollar menu” to salads and yogurts. Because of its size and profitability, if any fast food chain is going to survive a cultural nutrition shift, it’s MCD. $4.2 billion domestic sales. Annual sin tax: $1.17 billion.

3) Wendy’s/Arby’s Group Inc. (WEN) – This is one fast food company that might be severely damaged by the fallout from the trans fat tax. The most popular menu items at Wendy’s and Arby’s (the burgers and roast beef sandwiches, respectively) all exceed the minimum of .5 grams.  With a relatively small 67,000 employees and $3.5 billion in sales, the conglomerate can’t afford to take a hit based on a new domestic tax and afford to compete with Mickey D’s. $3,198 billion in domestic revenue – sin tax revenue: $432 million.