Taxing Snacks to Reduce Obesity
Salty snacks are an American favorite. Ninety-nine percent of U.S. households purchased some salty snacks, which include potato chips, corn chips, pretzels, tortilla chips, cheese puffs, microwave popcorn, and nuts, in 1999. On average, each U.S. household spent $76 on 32 pounds of salty snacks. Backers of a proposed tax on snack foods argue that such a tax will improve diets and health by reducing consumption.
Selective taxation of particular food items is rare for the Federal Government. Now, some public health advocates and health researchers are proposing an excise tax on snack foods as a way to reduce the prevalence of obesity in the United States. Three variations on such a tax have emerged, each envisioning a different pathway toward improving consumers’ diets and health. A tax imposed on snack foods that is paid by consumers would increase the price of snack foods and might give consumers an incentive to cut back on such items. A consumer-paid tax targeted at foods that contain particular unhealthy food attributes, such as saturated fat, might encourage food manufacturers to reformulate their products and offer consumers more healthful alternatives. The third variation involves earmarking the tax revenue to fund information programs promoting healthy diets and lifestyles.
Whether such a tax will change consumers’ diets depends on how big an incentive the tax provides for consumers and how responsive consumers are to price increases. ERS researchers used ACNielsen Homescan panel data to examine likely impacts of taxes on consumers’ dietary choices. Households providing the data recorded their food purchases from grocery stores and other retailers using in-home scanners.
While almost every household purchases some salty snack foods and would bear the burden of a tax, salty snacks constitute a minute share of the household budget. For example, the income group with the highest per capita expenditure on salty snack foods spent just 0.2 percent of its average $37,500 annual income on salty snacks. With expenditure shares that small, snack food purchases will probably decline very little in response to tax-induced price increases.
ERS researchers simulated tax impacts by using different measures of consumer responsiveness to prices and different tax rates. Relatively low tax rates of 1 percent and 1 cent per pound had negligible impacts on purchases of salty snack foods. For these cases, taxes would not appreciably alter diet quality or health outcomes. Tax revenues would, however, be positive—approximately $40 million per year for the 1-cent-per-pound tax and above $100 million for the 1-percent tax.
|Snacks||Share of households that purchased snacks (percent)||Average yearly quantity purchased by households that did purchase (pounds per household)||Average yearly quantity purchased by households that did purchase (pounds per capita)||Yearly expenditure by households that did purchase (dollars)|
|Other salty snacks1||96.8||16.5||7.9||37.41|
|All salty snacks||99.2||31.8||14.5||76.39|
|1Includes pretzels, microwave popcorn, cheese puffs, and nuts.
Source: Tabulations from ACNielsen Homescan panel, 1999.
Taxing Snack Foods: What to Expect for Diet and Tax Revenues, USDA, Economic Research Service, August 2004, Agriculture Information Bulletin No. 747-08
Taxing Snack Foods: Manipulating Diet Quality or Financing Information Programs?, Review of Agricultural Economics, Vol. 27, No. 1, May 2005