What’s the proper way to tax personal saving and investment? It’s a great question, and under current tax law, we have lots of different answers! Specifically, we have four of them, which I’ll get to in a moment. But...
- The Tax Policy Blog
- Blaming a Tax "Loophole" Doesn't Make a Ta...
Blaming a Tax "Loophole" Doesn't Make a Tax on Obesity More Palatable
In early May Senators Tom Harkin (D-IA) and Richard Blumenthal (D-CT) introduced a bill called the, "Stop Subsidizing Childhood Obesity Act of 2014." The bill targets business by eliminating the income tax deduction for advertising and marketing expenses for companies that market unhealthy foods to children. The bill uses the tax increase on these businesses to help fund the Department of Agriculture's Fresh Fruit and Vegetable Program.
Administering the tax first requires creating a legal definition of unhealthy food. The difficulty of this task and associated tax complexity has already been demonstrated by taxes on candy and soda at the state level. In this case the federal government will contract with the Institute of Medicine to develop a strategy to properly identify “food of poor nutritional quality” and “brands that are primarily associated with food of poor nutritional quality.”
Regardless of the bill's administrative costs or its policy merits, the bill singles out individual industries and mischaracterizes the current tax code by mislabeling true business costs. To disguise the tax increase the bill characterizes the current adjustment for marketing and advertising as a "nonsensical tax loophole," not an ordinary and necessary business expense.
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.
If policymakers believe that select businesses should bear the costs of childhood obesity then they should consider proposals on that basis. However, declaring that there is a current tax loophole that rewards businesses that advertise to innocent children obscures the actual debate. A loophole implies that there are extra dollars escaping the tax base, but advertising deductions are well within the federal tax base's current definition and should be.
Therefore, instead of simply closing a loophole and making the tax code “fairer”, as this tax change has been presented, this policy is would increase costs to business, make the tax code less neutral, and add unneeded complexity.
Since the implementation of Obamacare government has an increasing stake in rising healthcare costs. Therefore, policies designed to reduce obesity have become increasingly popular and contentious. If these policies become the norm, it is important that that they are designed according sound tax principles. For example, if senators intend to boost funding for the Fresh Fruit and Vegetable program, then they should do so in a neutral fashion, not by punishing businesses or the tax code.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.