Why Not Tax Thin Nonsmokers?


New York Times economics columnist David Leonhardt complains that the tax code is "complex in all the wrong ways," with "layer upon layer of subsidies, deductions, exemptions and extra taxes that serve no good purpose." His solution: make the tax code more intrusive by punishing people for unhealthy habits. He suggests the proposed federal soft drink tax, aimed not just at paying for health care but at discouraging overconsumption of calories and thereby curbing obesity, would be a step in the right direction, one of various possible "Pigovian taxes" on "activities that place a cost on the rest of society." He says "tobacco taxes have become the shining example" in this category.

Leaving aside the question of whether a soda tax would have a significant impact on total calorie intake, there are a couple of problems with Leonhardt's reasoning. First, smoking and overeating (unlike, say, air or water pollution) do not inherently "place a cost on the rest of society"; if taxpayers pick up the tab for the treatment of smoking- or obesity-related diseases, that is only because the government forces them to do so. Second, even if government-funded health care is taken for granted, both smoking and overeating actually seem to save taxpayers money. A 2008 Dutch study, for example, found that thin nonsmokers generate higher lifetime medical costs than obese people or smokers do because they tend to live longer. "The underlying mechanism," the researchers explained, "is that there is a substitution of inexpensive, lethal diseases toward less lethal, and therefore more costly, diseases." If the aim is to reduce government spending on medical care, New Jersey's tax on health club memberships, which Leonhardt cites as an example of "taxes that seem to defy all reason," probably makes more sense than a soda tax.