Monday, February 8, 2010

Health and the Soda Tax Fizzle

Fast increasing overall health care costs in the country, regardless of what happens to pending legislation in the Congress this year, will lead to higher insurance company premiums, higher individual co-pays and deductibles, and/or higher corporate and personal income taxes. There are many reasons for the increasing health care costs, including growth in our senior population requiring more care, lack of health care tort reform, and strong lobbying by the health care industry. Another big factor is the growth in the percentage of our population that is overweight or obese.

According to a number of credible sources, as many as one out of three of our children are now overweight or obese, and a similar ratio applies to adults! It is also of great concern that a majority of these overweight or obese people seem to be in lower income families who can least afford to pay for the substantial expenses associated with treating these weight conditions, especially such as diabetes and heart disease. Medical costs related to obesity in the U. S. are estimated at a scary $147 billion annually and growing!

It is not a secret why people become overweight or obese. A relatively minor factor is family genetics. The primary factors, of course, are diet, exercise, and lifestyle. With respect to diet, important elements are the intake of calories and sugar heavy foods. Sodas have been one of the noteworthy culprits, particularly for children. (A 12 fluid ounce can of Pepsi, for example, has 150 calories and 41 grams of sugar!) To deal with this problem, a well regarded doctor at Yale University proposed the idea of a soda tax in 1994 and now 33 states have a sales tax on soda purchases. But there's not yet a federal tax on sodas.

During the course of 2009, however, an effort was launched in Congress and in the Obama Administration to mobilize support for a federal soda tax, both to induce people to reduce consumption and to raise needed revenue to help in a small way to pay for health care reform. A study done at Yale concluded that a penny an ounce soda tax could induce a 23% drop in consumption and the Congressional Budget Office estimated that a smaller tax could raise $50 billion over 10 years. Certainly not insignificant.

Unfortunately, strong lobbying by Coca-Cola, PepsiCo, and the American Beverage Association (ABA) very recently apparently convinced Congress and the Administration to drop their earlier plan to adopt a tax. According to research by the L. A. Times, Coca-Cola last year spent $9.4 million, PepsiCo $9.2 million and the ABA $18.9million! Presumably this was largely spent on paying Washington lobbyists, attorneys, and Congress members on the key Ways and Means Committee, who sought corporate contributions, especially for upcoming reelection campaigns.

Interestingly, on the same day that the L. A. Times had an article on this subject, there was a full-page advertisement in the paper by Coca-Cola boasting about how much they are doing to reduce the calories of their drinks provided to schools and what they have been doing in partnership with the Boys & Girls Clubs of America to set up programs to get kids to increase their physical activity and learn more about proper nutrition. Looks like some clever collaboration with their ad agency and the media.

Two of their expected main arguments opposing the tax were that the tax would unfairly harm poor and lower income Americans and that a tax would quickly lead to many other unwelcome taxes on foods. I don't agree with the unfair harm, but they may have a point with other unwelcome taxes. Not surprisingly, they didn't bring up the harm to these Americans' health and pocketbooks that continuing consumption of sodas would result in! Seems like clear hypocrisy to me and also reminds me of the poor behavior of tobacco companies in past decades in marketing their products.

What should be done? Obviously a great many parents could do a better job of raising their children in terms of diets and physical activity that foster improved health and help them to maintain satisfactory weight levels. Fast foods restaurants and food manufacturers have taken some good steps in recent years in making and promoting lower calorie food options and better disclosing ingredients and nutritional content. But both business groups can do much more to benefit customers as well as shareholders. A separate post would be needed to cover that subject, but it's quite obvious what steps would help.

While I'm sure there are exceptions, the majority of schools and school districts can do a better job of providing more nutritious food in their cafeterias, limiting poor choices in on-site vending machines, a greater focus on prudent exercise in their PE classes and sports programs, and by offering a good required class in their curricula on health and nutrition, if they don't have one already.

If parents, businesses and schools all do their jobs well in this area, there is little need for the government to get more involved, aside from such as continuing to monitor and enforce proper public disclosures on products and appropriate sanitary conditions in factories, food stores and restaurants. However, since this is not the case, and health costs are such a large and growing part of state and federal budgets, it is appropriate for our government to get selectively involved to protect the public and more prudently manage public resources.

Adopting a reasonable federal sales tax on unhealthy foods, like sodas, is one reasonable tool. Working through the Departments of Education and Health and Human Resources to help schools and even parents is another. The bottom line is that better health for our $310 million Americans is, or should be, in virtually everone's interest. It would greatly improve the quality of life for those who are not as healthy as they could be, and it should materially improve the finances of both individuals and, importantly, our country itself, particularly in the long run.

Saturday, February 6, 2010

Federal Budget Action Steps

President Obama, his political agenda, and prospects for Democrats in the November mid-term congressional elections would be well served if he beginning immediately became a little less combative and more pragmatic in his approach to working with the Congress, especially independents and moderate Republicans, whom, realistically, he needs support from to get most important legislation passed. Part of this approach should be taking bolder action on the federal budget for fiscal 2011.

In my post published on 12/07/09, "U. S. Looming Fiscal Crisis," I emphasized how serious the country's economic situation was in view of the continuing recession, high unemployment rate, growing national debt, and continuing sizable budget deficits. I also laid out a number of recommendations including moving toward a balanced budget as quickly as possible, freezing hiring of federal employees, cutting health care costs, increasing sales tax on gasoline, and overhauling the IRS.

President Obama's State of the Union speech on January 27th had many good points and, as usual, was delivered very well. However, he didn't employ most of my recommendations and it just wasn't bold enough. For example, he said he will freeze non-security discretionary funding for three years. To reduce the deficit in a recessionary environment, and to show he is really serious, he needs to cut this spending by, say, 5%, instead of just freezing it, to help reduce the deficit. I think he was right to form a bipartisan fiscal commission charged with identifying additional policies to "put our country on a fiscally sustainable path." But he wasn't bold enough, in my view, in saying his goal was balancing the budget, excluding interest payments on our national debt, by 2015.

Keep in mind that interest on the national debt is typically our fourth highest budgeted expense category after defense, Social Security and Medicare. In fiscal 2007 and 2008 the interest expense was as much as $239 billion. It declined to $199 billion in fiscal 2009 due to much lower market interest rates. The President's goal should include interest expense. If he wants to exclude interest expense, the goal should be a balanced budget by 2013, latest 2014.

Obama's plan to form the bipartisan fiscal commission headed by Democrat Senator Kent Conrad from North Dakota and Republican Senator Judd Gregg from New Hampshire through a new bill was disappointingly blocked in the Senate on January 26th. However, as I understand it, he now intends to move forward with the commission by executive order. I agree with Senator Gregg when he on February 1st said the President should have "a tougher plan to address our fiscal crisis," because his budget will not adequately move us towards solving our problem.

Yesterday President Obama tried to rally Democrats with a fiery speech in Washington, D. C. at a meeting of the Democratic National Committee. Among other partisan comments he rightly said this was no time to abandon the bold agenda charted at the beginning of his administration. One political analyst said his strategy now seems to be appealing to Republicans to make compromises to come closer to the Democratic leadership's legislative proposals and, if they do not, to accuse them of obstruction. Assuming the analyst is correct, this is not a smart approach. Furthermore, there is a big difference between "abandoning" his bold agenda and making some temporary concessions to the opposition in order to move forward in the right direction.

The goal should be getting relatively expeditious congressional approval of major legislation on such as important issues as health care reform, financial institutions regulatory reform, and energy policy that are good for the country and the majority of the American people. It should not be the goal to try to ram through reform bills that are ideally what Democrats and the President would like to get passed, but realistically have little chance of getting approved in the foreseeable future.

A modified and scaled-down health care reform bill focusing on the primary problems with our current system, incorporating moderate Republican input, and more tangibly and meaningfully lowering overall costs, maintaining what works well now, would be a good place to start. Other recommendations for the President and his administration:

1. To set a better example for fiscal discipline, propose a modest 5% cut in salaries and benefits for federal employees earning more than $100,000 for the next two years.
2. Propose more restrictions on Administration and congressional expenses for travel abroad, including for meals and lodging.
3. With a view toward saving money for the government and average Americans, and simplifying our lives, overhaul the IRS and the whole process of preparing individual tax returns.
4. Increase the federal gas tax of 18.4 cents per gallon to 30 cents to raise revenue to be applied to reducing our deficit and improving our highways. This will also induce more conservation, lessen our reliance on energy imports, and encourage the purchase of more energy efficient cars and trucks, also aiding air pollution mitigation efforts.
5. Obviously a top priority right now is action to reduce the unemployment rate by creating hundreds of thousands new jobs with decent salaries and benefits. Tax incentives to induce smaller and larger businesses to make sizable new capital investments should be a major component of the new jobs bill currently designed in Congress.