Tax Analysts Blog

Democrats Just Love Their Nanny-State Taxes

Posted on Jun 4, 2014

Democrats often bristle at the suggestion that they support nanny-state policies. And with good reason, given the GOP tendency to equate any sort of social policy with overbearing big government.

But if Democrats don't want to be slandered, they should stop making it so easy. The Tax Foundation recently spotlighted a Democratic tax proposal that gives substance to the name-calling: the Stop Subsidizing Childhood Obesity Act, introduced last month by Sens. Tom Harkin, and Richard Blumenthal.

According to its champions, the act would protect children from the predations of junk food purveyors. In particular, it would deny manufacturers any sort of tax deduction “for advertising and marketing directed at children to promote the consumption of food of poor nutritional quality.” It would use the resulting revenue to help fund the Department of Agriculture's Fresh Fruit and Vegetable Program.

That all sounds great. Except for the fact that it’s arbitrary, capricious, and an egregious misuse of tax policy.

Now don’t get me wrong -- I have no love lost for the purveyors of Oreos, Cheetos, Ho-Hos, or any other vowel-laden junk food. But I don't think the tax system is the right vehicle for regulating the consumption of those foods – by children or anyone else.

As a tax geek, I was most offended by the bill sponsors’ attempt to claim the moral high ground of tax reform. The legislation, insisted Blumenthal, would close “the nonsensical tax loophole allowing companies to write off the cost of marketing junk food and sugary beverages to children.”

The deduction for advertising might be unfortunate, and in terms of public policy goals, it might even be nonsensical. But it is no loophole. As the Tax Foundation’s Tyler Dennis points out:

      Fully accounting for the costs associated with earning revenue in order to define business income is good tax policy, not a so-called "loophole." Business taxes are levied on profits, meaning revenue minus the costs of earning that revenue. Typically, advertising and marketing are included in these costs, and sound tax policy requires they should be.

Reasonable people can disagree about what qualifies as a loophole. But by almost any definition, the deduction for advertising junk food is not one. It is not inadvertent (one quality often associated with the term), and it doesn’t favor one group of taxpayers over another. Indeed, closing this “loophole” would actually create horizontal inequity where none currently exists.

I'm all for public health efforts designed to reduce childhood obesity. But it has to be done the right way, not just the easy way. It will take education initiatives and public information campaigns. It might even involve some prudent regulation of packaging and labeling.

And most important, it will require the elimination of real junk food subsidies, like those embedded in federal agriculture policy. As Jen Kalaidis reported last year in The Week,the vast majority of existing farm subsidies go to “meat, dairy, corn and other grains — a large portion of which are used to make junk food — while less than 1 percent goes towards fruits and vegetables.”

If Democrats want to do something about junk food, this is the place to start. As the food author Michael Pollan has observed, it’s these giveaways that make “Twinkies cheaper than carrots and Coca-Cola competitive with water.”

Read Comments (7)

david brunoriJun 3, 2014

Joe, Great post. I agree that Harkin and Blumenthal's proposal represents
terrible tax policy. The right approach that both liberals and conservatives
should rally around is to end the government subsidies to sugar farmers.

emsig beobachterJun 3, 2014

Conservatives want to control other forms of behavior.

Not a. LawyerJun 4, 2014

Our tax code is a complete mess, and very user-unfriendly for the average U.S.
Citizen, who just want to pay a fair and simplified freight. It seems this
mess was largely created by our elected officials' willing eagerness to sell
favors ( or the whole tax code) to their "special" friends. Are
you seriously trying to tell us this well constructed system of the wormholes
was built by Democrats? Let's go after Twinkies. This dishonest partisan
non-sense acts only as a means to make sure the tax system will never be fixed.

edmund dantesJun 4, 2014

Not all conservatives want to control other forms of behavior--the emerging
libertarian strain decries all such government control.

The word "loophole" lost its ordinary meaning long ago. Now it either means "a
tax provision I don't like" or "any tax provision that lets a rich person keep
any money at all." Harkin and Blumenthal are moderately intelligent, their
abuse of the language here is quite deliberate.

I completely agree with mr. brunori, if you want to cure obesity eliminate all
agricultural subsidies, starting with sugar. The Depression is over, we don't
need federal management of food any longer.

edmund dantesJun 4, 2014

N.A.Lawyer--no one said Democrats alone built the terrible current tax system.
Neither the blog post nor the comments are dishonest or partisan, excepting
perhaps only yours.

What the blog post did say, accurately, is that two Democrats have proposed to
further muddy up the tax code by adding a politically correct test to the
deductibility of ordinary business expenses. Furthermore, these Democrats
muddied up the debate by inappropriately labeling an ordinary business expense
a "loophole," which they did for political reasons. Calling out such repellant
tactics is hardly partisan.

Not a lawerJun 5, 2014

Edmund Dantes - I did not mean to imply anything in the post or any of the
comments were "dishonest" in any way. If anyone took it that way, I apologize.
That word is my take on the politicians (both major parties) who write the tax
code. As for the use of the word "partisan," please re-read the title.

vivian darkbloomJun 6, 2014

Regular readers and commenters here may recall the interesting back and forth I
had with Mr. Thorndike last November on the (mis)use of the term "loophole".
Back then, Thorndike defended its use for rhetorical and political purposes:

"It's not clear to me what the improper use of "loophole" might be, since it's
a political or even rhetorical term, not a legal one. I use it in some of my
writing for two reasons. First, because it appears regularly in the historical
record. In the 1930s, for instance, it was routinely tossed around by political
leaders and even some tax professionals to describe a variety of (legal and
often deliberately created) tax preferences. Second, I use the term because
it's in common use today, peppering almost every discussion of tax reform."

I'm glad to see that even Thorndike has his limits as to the use of rhetoric to
fog the debate over tax policy. I hope he's not come to the conclusion that
misusing the term is ok, so long as the person using it is on the "right" side
of the issue.

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