Senior Budget and Tax Policy Analyst
Does the government have any business taxing foods it deems unhealthy? That was the status quo in Denmark until recently, when the country got rid of its controversial fat tax. This nanny-state policy, originally put in place about a year ago, increased taxes on all foods with a saturated fat content of above 2.3 percent.
Authorities in Denmark killed the fat tax because it inflated food prices and put Danish jobs at risk. But the fact that increasing taxes on goods resulted in price increases really shouldn’t have been a shocker.
The purpose of the fat tax was to address Denmark’s rising obesity rates. Essentially, the Danish government thought it could change the behavior of individuals in a positive way by making unhealthy foods cost more. The plan failed.
As The Wall Street Journal reports, “There is little evidence the tax impacted consumers financially, but it did spark a shift in consumer habits. Many Danes have bought lower-cost alternatives, or in some cases hopped the border to Germany, where prices are roughly 20 percent lower, or to Sweden.”
Consumers respond to incentives. If it’s 20 percent cheaper to buy groceries across the border, then people will take a little extra time to save money.
Case in point: “The Sky supermarket located in northern Germany was one company benefiting from the [fat tax] trend. Last week, more than half the cars in the crowded parking lot had Danish license plates.”
In Illinois, Cook County just pushed through a $1 per pack tax hike on cigarettes with the intention of reducing smoking rates and filling the budget gap. But the county should learn from Denmark’s fat tax experiment. Increasing cigarette taxes will simply push consumers into the tobacco shops and gas stations in the bordering counties.