Research & Commentary: The Problem with ‘Fat’ Taxes

Published October 6, 2010

States are increasingly looking to soda, candy, and other so-called “fat” taxes as a way to shore up their budgets. That’s happening despite a lack of evidence that these taxes have any significant effect on obesity rates, the usual rationale for these taxes.

As happened previously with alcohol and tobacco, special-interest groups are targeting these foods and beverages because they are relatively easy to demagogue and they allow lawmakers to promote the taxes as a public health initiative rather than a tax increase. These taxes, however, must be extremely high to have any effect on obesity rates; they are highly regressive (disproportionately affecting lower-income people); and they prop up government spending increases by allowing lawmakers to kick fiscal problems down the road.

Any number of legal products and services can have negative effects if used in excess, but that doesn’t mean heavy-handed government intervention makes for good tax policy. Studies show that states with high “sin” tax rates also tend to have higher overall tax burdens. Further hurting small business owners and taking more money out of the pockets of an already-strained citizenry is unnecessarily burdensome and does not help the state’s fiscal condition.

Lawmakers who genuinely want to get their budgets under control should avoid hiking sin taxes and instead focus on real budgetary reforms such as enacting a reasonable tax and expenditure limit, reforming unfunded liabilities, and privatizing non-core functions of government.

The following articles offer additional information on “fat” taxes and their effect on state budgets.

Ten Principles of State Fiscal Policy
This booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from “Above all else: Keep taxes low” to “Protect state employees from politics.”

Research & Commentary: “Sin Taxes” Are Flawed Tax Policy
This Research & Commentary by Heartland Institute Budget and Tax Legislative Specialist John Nothdurft documents the effects “sin” taxes have on taxpayers, the economy, and budgets.

Junk Food Tax Is Junk Policy
This commentary by Heartland Institute Budget and Tax Legislative Specialist John Nothdurft analyzes the various problems with using “fat taxes” to fill budgets and alter behavior.

Soft Drinks Tax an Inefficient, Ineffective Way to Fight Obesity
Excerpted from a Mercatus Center study titled, “Taxing Sins: Are Excise Taxes Efficient?” this Budget & Tax News article looks at the effectiveness of soft drink taxes. “Taxes on sugar-sweetened soft drinks do not necessarily advance the overall public interest, may be regressive in nature, and hardly ever work as intended,” the study concludes.

Excise Taxes Impose Growing Burden on the Poor
This Budget & Tax News article examines how excise taxes affect the poor. The author notes, “if you want to help poor children, do not raise taxes on poor families.”

Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
This Research & Commentary from The Heartland Institute identifies some of the best and worst ways states use to trim their budget deficits.

The Poor Need Help, Not Hidden Taxes
Christian Science Monitor columnist David Francis takes aim at the disproportionate effect “sin taxes” have on the poor. “Because the poor tend to consume more of these items per capita than do those who are better off, poorer people bear a disproportionate share of that tax burden,” he writes.

General Taxes Out, ‘Sin’ Taxes Are In
This article from Budget & Tax News examines why more states are favoring “sin tax” hikes over increases in broad-based taxes. It explains the budgetary dangers inherent in the promise of higher health care spending attached to these tax hikes.

Commentary: Twinkies, Smokes, and Fries: The Fallacies of Sin Taxes
Robert Sirico, president of the Acton Institute, observes that the economic and moral considerations of “sin taxes” are not mutually exclusive. He warns: “we ought to consider fundamental issues regarding the interplay between private morality and public policy.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other tax topics, visit The Heartland Institute’s Web site at and Budget & Tax News at

If you have any questions about this issue or The Heartland Institute, you may contact Legislative Specialist John Nothdurft at [email protected] 312/377-4000.