Will The Increase In Fast Food Spend Among Affluent Consumers Make A Fat Tax More Palatable?

It would be hard to find anyone in the U.S. who hasn't altered their personal spending patterns over the past two years. But who could have predicted that those who charge more than $7,000/month on their cards -- defined as "ultra-affluent consumers" by American Express -- would increase their fast food spend by 24% in Q2 of 2010 over a year earlier? In quoting the above stats from American Express Business Insights, this morning's WSJ also writes that "McDonald's Corp ... has seen increased visits and spending across all demographics during the same period."

It's hard to say exactly what these people are thinking if they are in fact pounding down "value meals", but this is clearly a short sighted hat tip to frugality. In the aggregate, if this trend sustains -- or worse, expands -- it could portend even higher levels of health care spending. To wit, in November 2009, USA Today reported on the cost-of-obesity study released by the Centers for Disease Control and Prevention which found "that as obesity rates increased from 18.3% of Americans in 1998 to 25% in 2006, the cost of providing treatment for those patients' weight-driven problems increased healthcare spending by $40 billion a year."

All of which begs the question: Is it time for a fat tax similar to that imposed on cigarettes and has steadily increased over the past three decades while also reducing smoking? In July of 2009, the LA Times stated "If you happen to be the 1-in-3 Americans who is neither obese nor overweight (and, thus, considered at risk of becoming obese), you might well conclude that the habits of the remaining two-thirds of Americans are costing you, big time." The article also quotes an Urban Institute report claiming that "Key among the 'interventions' the report weighs is that of imposing an excise or sales tax on fattening foods ... to lower consumption [and] also generate revenues that could be used to extend health insurance coverage to the uninsured and under-insured, and perhaps to fund campaigns intended to make healthy foods more widely available ... and to encourage exercise and healthy eating habits."

Now clearly, the enormous complications of imposing a fat tax on prepared foods doesn't compare with the cigarette tax. But if the issue of regressive taxation – one that disproportionately impacts those who can least afford it – can be taken off the table, perhaps this increase in affluent junk food consumption will revive the concept of using a direct consumption tax to improve overall health, reduce healthcare spending and help pay for the societal costs of obesity.

William Busch

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