Wednesday, December 5, 2012

Denmark Repeals “Coconut Oil Tax”

Denmark is canceling its fat tax, also known as the “coconut oil tax” because the tax was levied most heavily on coconut oil. The sales tax was supposed to discourage the kind of overeating that leads to obesity, yet it was levied on all food products without making any distinction between healthy and unhealthy foods. It was based, quite arbitrarily, on estimates of each product’s saturated fat content. Half a century ago, it was thought that people gained body fat by eating food high in saturated fat, but new evidence says the more harmful form of fat is polyunsaturated fat, which was perversely exempt from Denmark’s tax.

It was a bad idea for a tax to begin with. Compliance costs were the highest of any tax I can recall, as they required a complicated computation of saturated fat content for every food package. It was, as I mentioned, targeted arbitrarily. Like all food taxes, it was heavily regressive, as people who have the least money to spend spend the highest proportion of their income on food. On top of all this, which was known when the tax was first implemented, the experience with the tax was disappointing. There was little indication that people changed their eating habits, and when they did, it was not in the direction of healthier food. People got around the tax, at considerable inconvenience and expense, by eating in other counties when possible and smuggling in coconut oil and other high-fat foods from other countries. The expense of these foreign trips led people to spend less on all products sold in Denmark, making the tax a drag on the national economy.

The experience is almost the opposite of New York City’s restaurant trans fat ban, which forced people to eat healthier substitutes — any natural fat is healthier than trans fat — and which had no indications of people looking for ways to get around the ban by eating in other jurisdictions. I am sure there are lessons in these comparisons for people who propose future health- and food-related taxes and rules.