Food Tax Will Be a Business Headache

This article was originally published in the “CAPITOL BUSINESS : The Business-Government Connection” section of the Sacramento Union on May 22nd, 1991.

Remember the good ol’ days when you could walk into a grocery store to buy a quick goodie to stave off starvation until dinner time?  Maybe you picked out something healthy like a granola bar, or maybe you got (as I do sometimes) a delicious twinkie with a shelf life of twenty years.  Whatever your habits, going to your store and making a decision as what to buy is going to be a little more difficult for consumers (and a lot harder for retailers) if SB 5 passes the legislature.

SB 5 includes the proposal to help balance the budget by taxing certain food items, commonly referred to as “snack foods”.  The legislation is being carried by Senators Ken Maddie (R, Fresno) and Wadie Deddeh (D, Chula Vista) for Governor Pete Wilson, who dug up the idea in 1990 from a dormant, 1983 piece of legislation.  While proponents claim the tax will raise $270 million dollars, it is certain to be an administrative nightmare and a huge headache for business, which raises the question of how much of that $270 million will be gobbled up by bureaucratic requirements.  If simple tax administration is good tax administration, then SB 5 doesn’t look so good.

The basic problem is that the proposal about what foods are to be taxed is vague and arbitrary.  There is no guiding principle which insures consistency and therefore SB 5 tends to discriminate against many different products and consumer groups.  For example, if you decide to buy raisins, you’re safe – no tax.  But with fig bars, add another 6.25% (7% if you live in Los Angeles).  Crackers and popcorn, normally considered healthy food, are also tax-targeted items, but ice cream is okay.  Granola snacks are taxed, but loose granola isn’t.  Peanuts are untaxed, but pretzels are.  A snack-size apple pie is taxed, but a regular-sized apple pie is not.  There seems to be no basis in nutritional value or caloric content or any other rationale as to why some foods would be taxed and others not.  The main distinction simply seems to be packaging.

What a headache for the stores.  Thousands of minor transactions with some taxed and some not.  In addition, every snack food on the SB 5 list qualifies for food stamp purchases and federal law mandates that food stamp purchases cannot be taxed!  Retailers will go nuts trying to keep up with who and what gets taxed and when.  While some states do place a tax upon food, such as New Mexico; no state in the union taxes just certain foods and not others.  

Furthermore, sales taxes are inherently regressive by their nature, but this proposal really places the burden on the less wealthy.  Under the proposed food tax, the percentage of income paid for these sales taxes by Californians who earn under $15,000 per year would be nearly three times higher than what is paid by the average family.  And it can be argued that if “snack” foods used by average Californians, such as whole wheat crackers, potato chips, pretzels and tortilla chips are to be taxed, then why shouldn’t more expensive “snack” foods such as Brie and macadamia nuts also be taxed?

Brad Sherman, Member of the Board of Equalization, is pushing hard to see that SB 5 is defeated.  And of course, Nabisco and Frito Lay, among others, are actively funding the work to build a coalition of senior, minority, labor, business and taxpayer groups to fight the proposal.  Our state government unequivocally needs the money as the budget deficit has grown from 10 to 12 to 14.3 billion dollars!  Wilson is scrimping to raise 7 billion in taxes and to cut 5.5 to 6 billion out of the budget.  However, taxes cannot be arbitrary and they must have a basic sense of fairness about them.

Bruce Lee expresses the views of the California Business League, a trade association dedicated to restoring quality government.  His column appears Fridays in The Union.  If you have comments or an item for the column, write Capitol Business, P.O. Box 60267, Sacramento, CA  95860.

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