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The Syntax of Sin Taxes: Putting It Together to Improve Physical, Social, and Fiscal Health

      The United States spends approximately 18% of its gross domestic product on health care, a proportion that far exceeds that of any other country and continues to increase. Unfortunately, this astounding expenditure is associated with suboptimal population health outcomes compared with other developed nations. The ever-increasing burden of health care spending threatens the financial solvency of the nation and is currently the topic of intense policy and political debate. Current issues prominent in this debate include (but are not limited to) (1) overuse rates for many services and procedures that are on the order of 30%, with marked regional variations in use that are unrelated to outcomes,
      • Korenstein D.
      • Falk R.
      • Howell E.A.
      • Bishop T.
      • Keyhani S.
      Overuse of health care services in the United States: an understudied problem.
      (2) Medicare and Medicaid spending as drivers of long-term increases in the federal budget,
      • O'Donnell M.P.
      A strategy to create jobs and reduce the deficit by making the healthy choice the easiest choice.
      (3) a large number of uninsured Americans,
      • Decker S.L.
      • Doshi J.A.
      • Knaup A.E.
      • Polsky D.
      Health service use among the previously uninsured: is subsidized health insurance enough?.
      and (4) marked health disparities based on race and socioeconomic status.
      • Murray C.J.
      • Kulkarni S.C.
      • Michaud C.
      • et al.
      Eight Americas: investigating mortality disparities across races, counties, and race-counties in the United States.
      A dominant and perhaps oversimplified theme in some policy discussions directed at improving the nation’s health is that if issue number 1 were addressed there would be plenty of resources available to address issues 2, 3, and 4. For example, if the 30% overuse rate is in fact accurate, “solving” it would free up billions of dollars per year to address the other issues. However, efforts to make health care in the United States more efficient have been elusive, and even if politically palatable solutions were developed, they would take years to implement in the current diffuse, chaotic health care environment.
      • Wang M.C.
      • Hyun J.K.
      • Harrison M.
      • Shortell S.M.
      • Fraser I.
      Redesigning health systems for quality: lessons from emerging practices.
      Although contentious debates related to the complexities of health care costs and financing are ongoing (and beyond the scope of this Commentary), missing from many of these discussions is an appreciation of how behavioral factors contribute to disease (and health). Indeed, medical care is only a minor contributor to overall population health.
      • Bezruchka S.
      The hurrider I go the behinder I get: the deteriorating international ranking of U.S. health status.
      • Jarvandi S.
      • Yan Y.
      • Schootman M.
      Income disparity and risk of death: the importance of health behaviors and other mediating factors.
      • Lee I.-M.
      • Shiroma E.J.
      • Lobel F.
      • Puska P.
      • Blair S.N.
      • Katzmarzyk P.T.
      Lancet Physical Activity Series Working Group
      Effect of physical inactivity on major non-communicable diseases worldwide: an analysis of burden of disease and life expectancy.
      Behaviors such as smoking, alcoholism, poor nutrition, and inadequate physical activity—the latter two being root causes of obesity—contribute importantly to the burden of disease and the cost of its treatment and are amenable to modification by behavioral approaches. Abundant evidence supports a specific policy approach that could ameliorate in part rising health care costs and could be rapidly implemented: namely, increased taxes on tobacco, alcohol, sugary beverages, and fatty foods. These are examples of Pigovian taxes, which attempt to recover the social cost of an activity (in this case, increased health care costs) not covered by the private cost of that activity.
      • Baumol W.J.
      On taxation and the control of externalities.
      Some of these so-called sin taxes are already in place (tobacco and alcohol), and others would be new in most jurisdictions. Two main arguments support such policies.
      First, consumption of these substances is sensitive to price. For example, the relationship between price and tobacco consumption is clear, although some smokers may compensate by more fully smoking each cigarette.
      Centers for Disease Control and Prevention
      State cigarette excise taxes—United States, 2009.
      There is a similar relationship between the price of alcohol and consumption. The magnitude of these effects is considerable, both statistically and from a public health perspective. Current evidence suggests that increasing alcohol prices can reduce drinking and driving, the rates of alcohol abuse, and alcohol-related violence. In particular, it is estimated that doubling the tax on alcohol would reduce alcohol-related mortality by about 35%, traffic deaths by 11%, sexually transmitted disease by 6%, violence by 2%, and crime in general by 1.4%.
      • Wagenaar A.C.
      • Salois M.J.
      • Komro K.A.
      Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies.
      • Wagenaar A.C.
      • Tobler A.L.
      • Komro K.A.
      Effects of alcohol tax and price policies on morbidity and mortality: a systematic review.
      For cigarettes, a 10% increase in cigarette prices typically reduces consumption by 4%.
      Centers for Disease Control and Prevention
      State cigarette excise taxes—United States, 2009.
      Since a reduction in secondhand smoke exposure produced by regulations prohibiting smoking in public spaces produces an immediate, dramatic decrease in cardiac and other events within a population, benefits that accrue due to decreased cigarette consumption could be even greater than the aforementioned 4%.
      • Tan C.E.
      • Glantz S.A.
      Association between smoke-free legislation and hospitalizations for cardiac, cerebrovascular, and respiratory diseases: a meta-analysis.
      The evidence that increasing the price on nonaddictive substances such as sugar can affect consumption is less well developed, but this idea has been discussed for some time in the context of the obesity epidemic.
      • Andreyeva T.
      • Chaloupka F.J.
      • Brownell K.D.
      Estimating the potential of taxes on sugar-sweetened beverages to reduce consumption and generate revenue.
      For example, it appears that taxes or surcharges on sugar-sweetened beverages may need to be considerable (in the range of 20%) to be effective, and there are concerns regarding compensatory behavior such as switching to equally caloric, but untaxed, beverages. Nonetheless, given the important role that consumption of these beverages plays in the obesity epidemic, the potential health benefits justify further exploration of this possibility.
      • Andreyeva T.
      • Chaloupka F.J.
      • Brownell K.D.
      Estimating the potential of taxes on sugar-sweetened beverages to reduce consumption and generate revenue.
      Along these lines, reduced consumption of tobacco, alcohol, and calories should lower the prevalence and severity of diseases attributable to these factors and exert downward pressure on overall health care spending in the short and medium term, although the longer-term fiscal implications of more people achieving old age are less clear.

      Congress of the United States, Congressional Budget Office. Raising the excise tax on cigarettes: effects on health and the federal budget. June 2012. Publication No. 4036.

      Second, these taxes have the potential to generate substantial revenue. Nearly $80 billion could be generated over the next 10 years by increasing the tobacco tax by 50 cents per pack.

      Congress of the United States, Congressional Budget Office. Raising the excise tax on cigarettes: effects on health and the federal budget. June 2012. Publication No. 4036.

      The alcohol tax as a percentage of the total cost of various forms of alcoholic beverages is much lower than it was in 1980. If the alcohol tax were increased to 30% of the pretax value of the beverage (it is currently about 10%), federal revenues would increase by $25 billion per year ($250 billion over 10 years).
      • Parry I.W.H.
      • Miron J.A.
      Should alcohol taxes be raised?.
      The effects of a 1 cent per ounce tax on sugary beverages would raise approximately $15 billion to $20 billion per year ($150 billion to $200 billion over 10 years).
      • Andreyeva T.
      • Chaloupka F.J.
      • Brownell K.D.
      Estimating the potential of taxes on sugar-sweetened beverages to reduce consumption and generate revenue.
      Before its recent repeal, a tax levied on fatty foods in Denmark generated about $200 million per year in taxes.
      • Bomsdorf C.
      Denmark scraps much-maligned “fat tax” after a year.
      The United States has about 60 times the population of Denmark, suggesting that about $12 billion in revenue per year or $120 billion over 10 years could be generated by a tax on high-fat food. All of these estimates are subject to many assumptions in relationship to costs of implementation, compensatory changes in behavior, and other factors. Nonetheless, estimates of these 4 sin taxes add up to about $600 billion or more of increased revenue over 10 years, which is a substantial fraction of the increased revenue being discussed as part of the current political negotiations over the federal budget.
      • Rattner S.
      More chips for tax reform.
      Ideally, these resources could also be used to subsidize care for the uninsured, buffer the fiscal pressures associated with Medicare and Medicaid, promote increased physical activity and better nutrition in the population, build public health infrastructure, or perhaps increase federal funding for biomedical research. However, given the past behavior of governments, which for example have largely diverted the revenue streams from the Tobacco Master Settlement Agreement from funding tobacco control efforts to other purposes, sustained political pressure will be required if these additional revenues are to be invested in health over the long term vs used for general revenue.
      • Rampell C.
      For cash-strapped states, sin is sure lucrative.
      • Sloan F.A.
      • Allsbrook J.S.
      • Madre L.K.
      • Masselink L.E.
      • Mathews C.A.
      States’ allocations of funds from the tobacco master settlement agreement.
      Despite these benefits, there are substantial barriers to increasing or implementing such taxes. Because the taxes effectively decrease consumption, it is not surprising that industries marketing these substances have engaged in intense lobbying efforts to oppose them. One of the major arguments raised against sin taxes is that they fall disproportionately on the poor who typically engage in unhealthy behaviors at higher rates than other segments of the population. This criticism is somewhat ironic, given that individuals with low socioeconomic status tend to suffer disproportionately from diseases related to the consumption of products or substances that might be taxed.
      • Jarvandi S.
      • Yan Y.
      • Schootman M.
      Income disparity and risk of death: the importance of health behaviors and other mediating factors.
      However, this raises the counterargument that the positive behavioral changes associated with these taxes would disproportionately benefit the poor in terms of both improved health over time and more money to spend on other things. This last concept is especially important because policies that promote positive behavioral health changes in the poor have been difficult to implement, and results have been marginal in many cases. There is also evidence that the poor are more price sensitive than other segments of the population, so the previously mentioned estimates of behavior change are probably low for the group that would benefit most by their adoption. To quote Murray et al,
      • Murray C.J.
      • Kulkarni S.C.
      • Michaud C.
      • et al.
      Eight Americas: investigating mortality disparities across races, counties, and race-counties in the United States.
      “Because policies aimed at reducing fundamental socioeconomic inequalities are currently practically absent in the US, health disparities will have to be at least partly addressed through public health strategies that reduce risk factors for chronic diseases and injuries.”
      In the current political climate, any type of tax is an anathema to some, and cries of “nanny state” can arise when governments attempt to implement policies intended to improve public health. However, rhetoric aside, sin taxes should have some basis for approval across the political spectrum. Sin taxes should be attractive to liberals concerned about disparities in health associated with socioeconomic status and race because promotion of healthy behaviors may well reduce these disparities.
      • Jarvandi S.
      • Yan Y.
      • Schootman M.
      Income disparity and risk of death: the importance of health behaviors and other mediating factors.
      They should also be attractive to conservatives who typically espouse a preference for policies that promote personal responsibility, and such taxes can positively affect individual health behaviors. From a market perspective, the Pigovian tax argument that individuals who engage in behaviors that increase costs to society in the form of increased medical costs should bear an increased individual responsibility for funding these costs should also be attractive to conservatives.
      • Baumol W.J.
      On taxation and the control of externalities.
      Paradoxically, a number of indices reflecting health behaviors are typically worse in more politically conservative areas of the country.

      Jeff Frankels Weblog. Views on the economy and the world: sinners, red states, blue states. October 4, 2012.

      Sin taxes would thus also encourage greater coherence between political philosophy and behavior in these regions.
      Finally, sin taxes are deeply imbedded in the history of the United States and from its beginnings have provided a major source of government revenue. For example, until the 18th Amendment to the US Constitution prohibiting most personal use of alcoholic beverages took effect in January 1920, alcohol taxes were the single largest component of internal revenue for the federal government, accounting in 1910 for 71% of all internal revenue and 30% of overall federal revenue.
      • Okrent D.
      Indeed, Prohibition would not have been fiscally feasible without the institution of the personal income tax in 1913 through the 16th Amendment, and contemporary politicians argued that the repeal of Prohibition in 1933 by the 20th Amendment was accelerated by the need for additional tax revenues.
      • Okrent D.
      Thus, the concept of increasing or levying novel sin taxes to benefit society is a thoroughly American practice that should not be foreign to those with even a passing knowledge of US history.
      In summary, a high fraction of overall health is dependent on behavior and relatively independent of the formal health care system.
      • Bezruchka S.
      The hurrider I go the behinder I get: the deteriorating international ranking of U.S. health status.
      • Jarvandi S.
      • Yan Y.
      • Schootman M.
      Income disparity and risk of death: the importance of health behaviors and other mediating factors.
      • Lee I.-M.
      • Shiroma E.J.
      • Lobel F.
      • Puska P.
      • Blair S.N.
      • Katzmarzyk P.T.
      Lancet Physical Activity Series Working Group
      Effect of physical inactivity on major non-communicable diseases worldwide: an analysis of burden of disease and life expectancy.
      Risk factors for most common and chronic diseases are directly linked to tobacco smoking, drinking ethanol, eating too much low-quality food, and physical inactivity. Sin taxes could address 3 of these 4 major behavioral determinants of overall health. Sin taxes have also been highly effective in improving public health in the past and in the current environment could be structured to raise substantial revenue and prevent both medical overuse and chronic diseases. The health benefits associated with sin taxes are also likely to have the greatest impact in subpopulations with the worst overall health.
      • Jarvandi S.
      • Yan Y.
      • Schootman M.
      Income disparity and risk of death: the importance of health behaviors and other mediating factors.
      Although consideration of such policies would (and has) engendered vigorous debate, sin taxes have the potential to rapidly benefit the physical, social, and fiscal health of the nation and should be seriously considered by policymakers and our political leaders.

      Supplemental Online Material

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