Friday, October 23, 2009

Soda: Tax or Cap-and-Trade?


In the beginning of 2009, New York's Governor Paterson injected a novel proposal into America's health care climate. Put simply, he suggested the following:

Problem: America's obese.
Solution: Tax soda.

Since Paterson publicly stated his concept, a high level of media coverage along with various reports and studies have followed. In a well-documented 'cost-of-obesity study' by the Center for Disease Control and Prevention, for example, the authors find that as obesity rates increased from 18.3% of Americans in 1998 to 25% in 2006, treatment costs for those patients' weight-driven problems increased healthcare spending by $40 billion a year.

Thus, the idea behind taxing America's favorite sugary liquid is to (1) discourage excessive soda consumption by making it more expensive and (2) generate revenues to help offset the high demand placed on the health care system due to obesity.

Government has used a similar strategy in the past on another unhealthy vice: cigarette smoking. Some results suggest that taxing cigarettes has succeeded in reducing usage and generated significant revenues. One special interest group claims that every ten percent increase in the price of cigarettes reduces the number of smokers by about four percent. As to increasing government revenues, New York City (home to the highest cigarette tax) collects an additional $4.25 per pack between state and local rates.

Is a 'food tax', however, the best way to control obesity in the U.S.? The distinction between food and cigarettes is an important one--while cigarettes seem to have no redeeming qualities, unhealthy foods might. During a tangent while on NPR's Diane Rehm Show, Sanjay Gupta (journalist/neurosurgeon) shares his opinion on the idea of a soda tax, and food taxes more generally. Gupta's argument dives into complex socioeconomic issues woven in the fabric of unhealthy food taxation. Taxing unhealthy foods, he claims, will hit the poor the hardest. He extends his example to McDonalds--describing a family of four eating for less than $20. Instead, Gupta recommends incentivizing healthy foods, making them more accessible to lower income families.

Although I admire the nobility of Gupta's proposal, when I hear 'incentivization', I think...where's the money coming from?

There's a better solution: Soda Cap-and-Trade.

Many of you may think this is a slice of satire, and maybe it is. Regardless, the concept is to mimic emission cap-and-trade schemes, but in the context of food nutrition. Emission cap-and-trade works (theoretically) by rewarding good performance (low emissions), and penalizing bad (high emissions). Some regulatory entity (e.g. federal government) sets a cap on emission levels (e.g. kilograms of carbon dioxide) for each economic sector (e.g. chemical manufacturing, electricity production, paper manufacturing, etc.). Companies over this cap must buy credits to offset any surplus emissions; companies under the cap get credits to sell. All of this trading is done on an emissions market.

A Soda Cap-and-Trade would work similarly. Reward good performance (good nutritional content), and penalize bad (poor nutritional content). Instead of emissions, the cap on poor nutritional content levels could be based on any number of criteria: nutritional levels (e.g. calories, fats, proteins, sugars, vitamins/minerals, etc.) or ingredients (e.g. hydrogenated oils, high fructose corn syrup, undesirable preservatives, etc.). Of course, these levels should be set according to some reference unit such as 'g trans fat per 100g of food'. Companies over the nutritional cap would be required to buy credits from those producing healthier food items.

Overall, a Soda Cap-and-Trade system would achieve the best of Gupta's seemingly diatomic dilemma: incentives for healthy foods and taxes for unhealthy foods. On top of that, we would no longer need worry about the source to finance healthy food incentives. Obesity-intensive food producers would suddenly face the stark reality of nutritional-survival-of-the-fittest.

1 comment:

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