Tax Analysts Blog

Treating Twinkies Like Crack

Posted on Aug 6, 2013

If Rep. Rosa DeLauro gets her way, you might see fewer ads for Twinkies, Devil Dogs, and Yodels in the years to come. The Connecticut Democrat recently introduced legislation to close a “loophole” permitting companies to deduct advertising expenses for marketing “unhealthy food products” to children.

Unfortunately, that deduction isn’t a loophole, even by the loosest definition of the term (which is notoriously loose under any circumstances). Advertising has long been treated as a necessary business expense under the tax law, and its deductibility is consistent with income tax principles.

Since the 1980s, certain shady characters have been deprived of this deduction, most notably drug dealers. But in a 2003 article for the Saint Louis University Law Journal, Carrie F. Keller complained about this sort of targeting. “Public policy justifications are the basis for the inclusion of section 280E in the Code,” she wrote. “However, the section does not conform to the general unbiased functioning of the Code; drug dealers are singled out as a group and are denied access to the normal system of deductions and credits available to ‘legitimate’ business operators.”

Drug dealers, of course, are an easy target. (And a well-precedented one: as the IRS likes to point out, it took an accountant to catch Al Capone, who was also selling illicit substances). But once you start targeting undesirables, where do you stop?

Come to think of it, there are lots of child-focused advertisements I could do without. For instance, I think we should disallow marketing expenses for most toys, but especially for Beanie Babies – an especially pernicious and addictive product, judging by the frenzy they cause in my house.

It’s easy to ridicule the do-gooder impulse in tax proposals like DeLauro’s. Maybe too easy; after all, Americans have a long history of regulatory taxation, especially when it comes to alcohol and tobacco. But it’s a slippery slope, and in recent years, anti-obesity groups have been skittering down it quickly. First it was soda taxes, then snack taxes. Now we’ve moved on to advertising deductions for those same items.

Nanny state tax policies can be appealing, especially when they target real problems – like child obesity. But overzealous regulatory taxation – even when it works – is bad for the tax code. And ultimately, that's an even bigger problem.

Read Comments (2)

David BrunoriAug 6, 2013

Joe, excellent post, even though I disagree with the statement that "nanny
state tax policies can be appealing." Using the tax code to further social
agendas is a bad policy. DeLaura's idea is ridiculous on so many levels. Just
how would she define unhealthy food for children? Calorie content? Sugar
content? I am surprised she has not suggested denying exemptions to parents of
fat kids. For legislators like DeLaura, we should be happy that the Republicans
in the House are obstructionists.

edmund dantesAug 8, 2013

DeLaura's definition of unhealthy food would be easy--whatever she says. Just
ask her. No muss with objective definitions, too complicated, her opinion
should be sufficient. She knows it when she sees it. Just make her queen--don't
all democrats crave royalty?

Using the term "loophole" in this way is deeply dishonest, and tends to poison
the well for meaningful discussion.

BTW, the Republicans in the House aren't the obstructionists, those guys are in
the Senate, led by Harry Reid.

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