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US States Extend Higher Tax Rates On 'Fat Taxes'

by Mike Godfrey, Tax-News.com, Washington

03 November 2011


A new study by the Tax Foundation has found that US states are increasingly extending higher tax rates to products like candy and soda, ostensibly to fight obesity, and that this is creating a complex and confusing classification system to divide the ‘good’ food and drink products from the allegedly ‘bad’ ones.

According to the study, 17 states tax candy at a higher rate than other groceries, while four states collect a special excise tax on soda. In addition, in 2011, 14 more states have proposed new soda taxes and two states proposed new candy taxes, and some of the soda tax proposals would have raised prices by as much as 264%.

"While reducing obesity-related health problems is a worthy goal, adding an additional tax burden to particular food and beverage categories is a clumsy and inefficient strategy," said Tax Foundation analyst Scott Drenkard. "Obesity taxes fall on all consumers, including those who consume candy and soda in moderation and have no weight-related health issues."

The Tax Foundation adds that recent studies suggest that, even when selective taxes on certain food products do cause individuals to consume less, those same individuals replace the calories avoided with other foods, resulting in no net decrease in caloric intake.

In addition, it points out that, to questions about the effectiveness of reducing obesity rates, the systems already in place for taxing candy and soda illustrate the unexpected difficulties in deciding what does and what does not count as candy and even soda.

Chocolate bars that include any kind of flour, for example, generally do not meet the legal definition of candy. Under many tax laws, a product with flour would be treated as food while a similar product without flour would be considered candy. In the case of soda, some states exempt beverages with as little as 10% fruit juice, while in Tennessee, Oregon and Texas, drinks must be 100% juice to be exempt.

"The solution to the obesity problem will not come from government authorities picking out a handful of products to saddle with extra taxes," Drenkard concluded. "Consumers need to be free to make prudent decisions about their own diets and health needs without lawmakers trying to stack the deck in one direction or another.”

TAGS: individuals | tax | sales tax | excise duty | food | health care | United States

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