Sugared-Beverage and Higher Cigarette Taxes Provide Chance for Budget Triple Play
Health Care
Wed, 17 Feb 2010 12:43:00
Obesity and smoking are two of New York’s greatest public health challenges. These avoidable conditions impair happiness, inhibit life success and cause many chronic and debilitating conditions, including type 2 diabetes, heart disease, hypertension, lung and other cancers, and emphysema. Obesity and smoking are particularly prevalent in lower income populations already burdened with other difficulties and victimized by unscrupulous marketers.
The estimated costs of treating health problems related to obesity and smoking are staggering – more than $15 billion a year in New York State alone. We all pay these costs through insurance premiums and through taxes that support Medicaid and Medicare.
In his proposed executive budget for 2010-2011, Governor David Paterson has challenged New Yorkers to support a smart strategy that will begin to turn the tide on obesity and make further gains against tobacco. His sugared-beverage and cigarette tax proposals employ the power of economic incentives to influence consumer choices and offer the added advantages of reducing future private and government costs and raising revenue for health care.
We all know that economic incentives profoundly affect our choices as consumers. When prices rise – whether due to production costs, corporate profits or taxes – sales drop. Marketers call this “price elasticity” and know that it operates most powerfully for elective purchases, such as cigarettes and sugared beverages, for which there is no actual necessity and for which there exist many competing and better choices. Many public health leaders, including Dr. Thomas Frieden, now director of the federal Centers for Disease Control and Prevention (CDC), support the use of taxes to reduce the consumption of sugared beverages.
Sugar-sweetened beverages contribute at least one-third of all added sugar in our diets. All but the most conflicted authorities confirm that sugared beverages are a principal and easily identified source of the excess calories that are the principal cause of the country’s rising obesity rates.
The Governor has proposed an excise tax on sugar-sweetened beverages that will increase the prices of covered products by about 17 percent, or one cent per ounce. He has also asked for a further $1.00 per pack tax on cigarettes, restoring cigarette taxes in New York to the highest in the nation.
We estimate that the Governor’s beverage tax will reduce sugared beverage consumption by 10-15 percent, a range that is amply supported in the beverage industry’s own marketing data and elasticity models. Reductions of this magnitude will begin to make major inroads against obesity, save future health care costs, and are not achievable by other means such as public education campaigns. Families reducing taxed beverage consumption by 15-20 percent and substituting other, healthier drinks such as water and low fat milk will have little or no net economic impact.
The special beverage excise tax also would be a significant revenue generator for New York, raising $465 million in new revenue for health care in 2010-11, and $1 billion in 2011-12. Without this additional revenue, the governor would have been forced to recommend drastic reductions to health care services in his budget.
While the precise price elasticity models of the beverage industry are closely held trade secrets, we have ample historical precedent to make very accurate predictions of the effect of a further $1 per pack increase in the cigarette tax. It will reduce adult smoking in New York by about 50,000, cut current youth smoking by 10 percent, prevent approximately 100,000 children from developing the nicotine addiction that would condemn them to lifetime smoking habits, and will save an estimated 48,000 New Yorkers from premature death. Tens of millions of dollars in future health care costs will be averted, and $200 million in new annual revenue will be raised, also for investment in health care services.
The Governor has shown considerable political courage in making these tax proposals in an environment as tax-averse as today’s. But these are not just ordinary, lamentable tax increases on productive activities. These carefully targeted taxes are a chance to pull off a brilliant “triple play” that will make people healthier, save health care costs, and provide revenue for health care services. Let’s not ask Governor Paterson to make his health care triple play unassisted by informed public opinion.
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Richard Daines, M.D., is New York State Commissioner of Health.
The estimated costs of treating health problems related to obesity and smoking are staggering – more than $15 billion a year in New York State alone. We all pay these costs through insurance premiums and through taxes that support Medicaid and Medicare.
In his proposed executive budget for 2010-2011, Governor David Paterson has challenged New Yorkers to support a smart strategy that will begin to turn the tide on obesity and make further gains against tobacco. His sugared-beverage and cigarette tax proposals employ the power of economic incentives to influence consumer choices and offer the added advantages of reducing future private and government costs and raising revenue for health care.We all know that economic incentives profoundly affect our choices as consumers. When prices rise – whether due to production costs, corporate profits or taxes – sales drop. Marketers call this “price elasticity” and know that it operates most powerfully for elective purchases, such as cigarettes and sugared beverages, for which there is no actual necessity and for which there exist many competing and better choices. Many public health leaders, including Dr. Thomas Frieden, now director of the federal Centers for Disease Control and Prevention (CDC), support the use of taxes to reduce the consumption of sugared beverages.
Sugar-sweetened beverages contribute at least one-third of all added sugar in our diets. All but the most conflicted authorities confirm that sugared beverages are a principal and easily identified source of the excess calories that are the principal cause of the country’s rising obesity rates.
The Governor has proposed an excise tax on sugar-sweetened beverages that will increase the prices of covered products by about 17 percent, or one cent per ounce. He has also asked for a further $1.00 per pack tax on cigarettes, restoring cigarette taxes in New York to the highest in the nation.
We estimate that the Governor’s beverage tax will reduce sugared beverage consumption by 10-15 percent, a range that is amply supported in the beverage industry’s own marketing data and elasticity models. Reductions of this magnitude will begin to make major inroads against obesity, save future health care costs, and are not achievable by other means such as public education campaigns. Families reducing taxed beverage consumption by 15-20 percent and substituting other, healthier drinks such as water and low fat milk will have little or no net economic impact.
The special beverage excise tax also would be a significant revenue generator for New York, raising $465 million in new revenue for health care in 2010-11, and $1 billion in 2011-12. Without this additional revenue, the governor would have been forced to recommend drastic reductions to health care services in his budget.
While the precise price elasticity models of the beverage industry are closely held trade secrets, we have ample historical precedent to make very accurate predictions of the effect of a further $1 per pack increase in the cigarette tax. It will reduce adult smoking in New York by about 50,000, cut current youth smoking by 10 percent, prevent approximately 100,000 children from developing the nicotine addiction that would condemn them to lifetime smoking habits, and will save an estimated 48,000 New Yorkers from premature death. Tens of millions of dollars in future health care costs will be averted, and $200 million in new annual revenue will be raised, also for investment in health care services.
The Governor has shown considerable political courage in making these tax proposals in an environment as tax-averse as today’s. But these are not just ordinary, lamentable tax increases on productive activities. These carefully targeted taxes are a chance to pull off a brilliant “triple play” that will make people healthier, save health care costs, and provide revenue for health care services. Let’s not ask Governor Paterson to make his health care triple play unassisted by informed public opinion.
--
Richard Daines, M.D., is New York State Commissioner of Health.
