Don’t believe the propaganda – sin taxes are designed to punish the poor

With the sugar tax taking effect in Britain on Friday, the Lancet has dedicated a whole issue to the wonders of taxation. It includes an opinion piece about sin taxes by the economist Larry Summers which aims to ‘dispel notions that are outdated, misleading, or simply wrong.’ Summers has recently become the co-chair of Michael Bloomberg’s Task Force on Fiscal Policy for Health. Billionaire Bloomberg is very keen on taxing soft drinks at the moment and has given millions of dollars to groups in the USA, Mexico and elsewhere to lobby for them. Last year, he wasted at least $5 million trying to keep the massively unpopular soda tax in Illinois alive.

A key reason why such taxes are unpopular is that they are regressive. Excise taxes on everyday products almost invariably take a greater share of income from the poor than from the rich. Taxes on tobacco, fast food and soft drinks are doubly regressive because people on below-average incomes tend to consume more of them in the first place.

This is not a notion that is ‘outdated, misleading, or simply wrong’. It is a demonstrable fact. In Britain, the poorest decile spend 34 per cent of their disposable income on indirect taxes, including 2.9 per cent on tobacco duty and 2.0 per cent on alcohol duty. For the richest decile, the equivalent figures are 14 per cent, 0.1 per cent and 0.9 per cent respectively. There is no doubt that the sugar tax will be similarly regressive when it comes into effect on Friday.

If you were employed by one of the world’s richest men to lobby for higher taxes on the poor, you might start to wonder if you were one of the baddies. Summers’ editorial seems designed to help him and his readers sleep easier at night by redefining the meaning of the word ‘regressive’ and engaging in some wishful thinking about the efficacy of such policies.

His central argument is that while the financial impact of sin taxes is regressive, the health impact is progressive. The aim of such taxes is to reduce consumption of potentially unhealthy products, thereby improving health. Since people on low incomes are least able to afford these products, any price rise will disproportionately benefit their health. Sugar tax campaigners are fond of this argument. For example, Simon Capewell of Action on Sugar says: ‘Poorer people would benefit more from a sugary-drinks tax, so it would be progressive in health terms’.

This argument has a certain superficial appeal and yet it is not borne out by the facts. For a start, there is no evidence that taxes on soft drinks have ever improved the health of anybody anywhere. The evidence base cited by sugar tax campaigners, such as it is, is dominated by theoretical models devised by fellow advocates of sugar taxes, but if you look at the places that have actually introduced such taxes, there has not been a decline in the consumption of sugary drinks, let alone in obesity.

The great success stories of the sugar tax movement supposedly took place in Mexico and Berkeley, California, but ‘public health’ campaigners routinely misrepresent what happened in these places. Evidence published by Mexico’s National Institute of Public Health shows that per capita consumption of sugary drinks was slightly higher after the soda tax was introduced than it had been before, and there was no statistically significant change in consumption of soda in Berkeley after its tax was introduced. The only noticeable effect of the Berkeley tax was to push shoppers out of town.

Tobacco taxes have more of an effect, not least because they tend to be much higher, but there is precious little evidence that poor people are more responsive to them (and therefore ‘benefit’ more from them). In the 1950s, smoking rates were much the same across the socio-economic spectrum. If people on low incomes were more responsive to sin taxes, we would expect decades of rising tobacco duty to have made smoking the preserve of the wealthy. The reality could not be more different. People who earn less than £10,000 a year are now twice as likely to smoke as people who earn more than £40,000 a year. Smoking has increasingly become the preserve of the poor.

In the case of alcohol, there is a closer relationship between affordability and consumption in so far as low income groups tend to drink less than high income groups. Alas, this does not translate into better health outcomes. The socio-economic groups that consume the least alcohol suffer the most alcohol-related harm, a phenomenon known as the alcohol harm paradox.

The claim that poor people benefit from paternalistic taxation is therefore highly questionable and the claim that they benefit from them more than rich people is plainly wrong. It is based on the crude assumption that those who can least afford a product will be most likely to abandon it when the price rises. But it will always be cheaper to drink water than wine, to eat boiled vegetables rather than McDonalds and to be a nonsmoker rather than a smoker. If affordability were the decisive factor, the poor would be paragons of health and the rich would be gout-ridden, chain-smoking wrecks.

If you ignore all the reasons why people make certain lifestyle choices, it seems intuitive that people on low incomes will be most responsive to a tax hike, but this is to ignore a great deal. Once the choice has been made, a tax becomes something that you either stump up for or try to swerve by switching to a cheaper brand and dabbling in the shadow economy. That is how most people, rich and poor alike, respond to tax rises.

As a result, the most notable impact of sin taxes is to relieve ordinary consumers of their hard-earned cash. The regressive financial effects are real and well-evidenced whereas the ‘progressive’ health effects only exist in the spreadsheets of ‘public health’ computer models. No amount of sophistry can disguise the fact that sin taxes clobber the poor. To all intents and purposes, they are fines imposed on ordinary people as punishment for engaging in activities that displease super-rich do-gooders such as Michael Bloomberg and Jamie Oliver. If you support them in the full knowledge of this fact, you are probably one of the baddies.

  • Rick

    Well said, Mr. Snowden…

  • Richard

    In what way is this a “tax”? Payment is voluntary.

    • snellasaurus

      In the same way as VAT or any other consumption based tax

      • Richard

        VAT isn’t levied on basic foodstuffs.

    • Father Todd Unctious

      It is more like an excise duty.

  • alw

    How about being proactive rather than reactive as regards health matters for example too many people get on the bus for one, two or three stops instead of walking, too many young children who are perfectly able to walk pushed around in buggies, how about supermarkets cutting down on BOGOF and other special offers…why penalise customers for buying 1 of an item only?

    • monsieur_charlie

      I’m a pensioner and I think BOGOFS are great. Yesterday, in my local Tesco, I bought two melons for the price of one. Last week I bought two kilos of salmon for the prices of one at the same shop. Why punish very shopper in an attempt to force some of the more stupid into a better lifestyle. Truly a ”’nanny state of the worse type.

    • commenteer

      Since nearly everyone has a fridge and a freezer, I’m at a loss to know why BOGOF is wrong. It is a boon to the thrifty.

      • alw

        Some people don’t have fridge freezers to accommodate the offers. In any event we need to be cutting down waste as some throw away the food they don’t use.

        • commenteer

          Fridge/freezer ownership in the UK stands at 97%. There’s no reason why lazy, indulgent people who can’t be bothered to cook or store food properly should spoil things for the rest of us.

          • alw

            It’s not the ownership it’s the size. If retailers want to shift produce fast they should reduce the price. Those who can’t be bothered to cook are another story altogether.

    • Malcolm Knott

      How about chucking fat people off the bus after one stop?

  • Am_I_the_only_sane_one_left

    Truth is, that we have all become fat bas*ards, and something has to be done. Tax may or may not work, but it signals to food manufacturers that they are in the firing line, and should sort their stuff out.

    Part of me sees it as darwinism in action and the weak should be picked off from the herd, but part of me wants us to stop seeing being fat as ok. You see it a lot of ‘millennials’ talking about body positivity – but in reality we should be pointing at them, laughing, and calling them fatty. Although you cant hurt feelings anymore apparently.

    Yes there is a huge amount of middle class preaching from Jamie Oliver, health officials etc al – but they aren’t wrong they are just arseh*les. The free market is regulated in most walks of life – why not food and drink.

    Try buying a salad at a sports stadium, try buying something not fried at a motorway service station.

    Even the most ardent supporter of freedom bust see we have a problem.

    • Exsugarbae

      I wouldn’t be quite as harsh as your Darwinian view but I do worry about the ‘body positivity’ craze, it’s gone wrong. Being fat will kill you quick and that’s just true. I think the idea was to celebrate normal bodies and not just skeletal models but it’s turned into something quite sinister.

      I think part of the problem is kids don’t get into trouble outside, we had nothing to in the house so we were sent out on our bikes. I wanted my kids to have lots of freedom but it’s no fun when the neighbours totally believe their kids will be kidnapped or break their backs if they’re not supervising them every minute, I think we’ve managed to breed a generation of fat, neurotic kids who have no street smarts or common sense.

    • Zalacain

      It is not up to the government to tell me what to eat and drink. In the 80’s they were telling us that eggs were very dangerous, then bread, etc. I have no interest in being made to pay for other people’s ignorance/weaknesses.

  • Nomis

    Apparently the sugar tax is intended not to punish the consumer, poor or otherwise, but to encourage manufacturers to reformulate their sugar-rich soft drinks to contain less sugar, and thereby avoid the new tax altogether. The flaw in this argument is that “diet” or “sugar-free” versions of most soft drinks already exist and yet consumers continue to buy large quantities of the “full fat” variety, either because they prefer the taste or have concerns over the long-term effects of artificial sweeteners. Success of the strategy will be proven if all soft drinks end up having less sugar in them. But I suspect vendors will be loathe to alienate their fickle customers by changing the taste significantly, and that will almost certainly result in the increased use of artificial flavours and sweeteners. And if vendors retain the “classic” product to cover all bases then I wouldn’t be surprised if it turns out that most consumers are prepared to pay extra for their sugar fix of choice.

  • Exsugarbae

    I see the points made in the article. Sugar has drug like qualities, I know I tried cutting out the sugar totally and got withdrawal symptoms.

    We need education, a change of culture and a change in conditions. Poverty and addiction go together because you cant plan long term and you want a little happiness. Getting trashed on bad booze is a weekend away, a bar of chocolate or cigarette gets you through a stressful late shift in a job with awkward hours and little satisfaction.

    All parents want to ‘make their kids happy’, I’ve been a single working mum and still hardly been able to afford a decent day out, I hate to say it but cakes, fizzy drinks and pizza in front of a movie is cheaper than a day out ice skating (I live miles form the nearest ice rink). With all the horrible rhetoric about your kids being so unfortunate, guilt about always being at work and still never having any fun family time you want to do something so they have some memories of a happy childhood.

    So agreed, don’t tax the poor’s self destructive pleasure, help poor people make their lives better and be able to save for long tern goals and jobs that bring some satisfaction.

  • PetaJ

    Good article. It should also be recognised that people like Bloomberg are control freaks. The more money they have the more they want to control everyone and everything that takes their fancy. It has nothing whatsoever to do with being concerned for the “public good”.

  • Sean L

    Surely it’s more ‘libertarian’ for goods to be taxed than income? Thereby tax is voluntary rather than compulsory. And I can’t think of a better candidate for such a tax than nutritionally worthless, tooth-rotting sugar water which people should be discouraged from consuming anyway. If you’re genuinely in favour of lower taxes, surely there are worthier targets?

  • MikePage

    Punish the poor? Obviously some marginal usage of the word “punish” I was not previously aware of; perhaps due to its omission from the dictionary.

  • graeme jones

    with harmful behaviour, you can either ban it or tax it.

    Heroine, you ban it – Christopher would say this is terribly paternalistic, or even worse, you could tax it! Darren the smack-head is getting fleeced by the government to pay for his £10 starter bag!

    oh, and stick this ‘paternalistic’ boll**ks up your arse. When we have shared health services, and a society, (that terrifying word that makes loony-libertarian shudder), and when we have chronic public health problems of obesity and diabetes, taxing sugar is sensible policy.

    The anti-sugar tax lobby are like a milder, more eccentric, British equivalent of the US gun lobby.

    Most people make bad health decisions, the aim should always be to empower people so they don’t need safety barriers, but until we as a society have demonstrated our capacity to make good decision around diet and health, tax it or ban it.

    You can vent at your poxy local tory club, talking hot air about the ‘free markets’ and why Thatcher didn’t go far enough.

    Also, this has nothing to do with ‘the poor’. This is about your ideology, and the many reasons it is wrong.

  • David Brown

    Taxes are always to punish the poor people and make rich people even richer. That’s how the world is built and that’s why we need to change the system.

    my blog –