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Behind the Fat Taxes
QSR investigates why food and drink taxes are suddenly popping up on state and federal budget proposals.
Indulgent food and drink may soon be slapped with a sales tax.

Budget-crunched lawmakers at all levels of government are looking to impose a new generation of “sin taxes” on production and consumption of calorie-laden beverages and foods.

Illinois, for instance, just passed a sales-tax increase on soft drinks with added sweetener or flavoring, which is supposed to help raise about $150 million a year toward a $30-billion plan for rebuilding roads and schools. Such punitive state-level efforts aimed against “unhealthful” foods are also in the works in municipalities from Haverhill, Massachusetts, to Kingman, Arizona.

And at the national level, supporters are rallying behind a tax on bottlers of sugary beverages that could raise $16 billion a year per penny per ounce over a decade. The seriousness of the effort already led to the creation of an anti-group, called Americans Against Food Taxes, by quick-serve chains, retailers, and food and beverage giants.

“Legislators in every jurisdiction are desperate for money,” says Bob Goldin, executive vice president of Technomic Inc., a Chicago-based foodservice consulting firm. “And they see this as an opportunity to raise revenue, cloaked in the guise of public welfare.”

The idea of imposing such taxes has been around for a long time, of course, but the extreme treasury crunch is only one of four factors that are giving it fresh legs—and perhaps putting soft-drink levies on the same road as tobacco taxes a generation ago.

Second of these factors, Goldin suggests: Advocates have tagged new taxes on certain non-nutritious foods as a sensible way to help cover the mammoth costs of the nation’s proposed health-care overhaul. Various food-regulation advocacy groups say the proceeds would comprise a significant down payment on the costs of comprehensive health-care reform, which could run more than a trillion dollars.

Third, with rising obesity rates still unchecked, more people from policymakers to rank-and-file citizens believe that it may finally be time to use the tax stick to discourage over-consumption. New research from the Robert Wood Johnson Foundation, for instance, shows that more than a quarter of adults are obese in 31 states, and in no state had the obesity rate fallen since last year.

According to a University of Minnesota researcher, a 10-percent increase in soda prices could cut consumption by 8 to 10 percent.

They see this as an opportunity to raise revenue, cloaked in the guise of public welfare.”

And fourth, highly placed consumer watchdogs prevail in the Obama administration. One of them is Thomas Frieden, now head of the Centers for Disease Control and Prevention, who was co-author of a major article in April’s New England Journal of Medicine. Frieden and Kelly Brownell, director of Yale University’s policy and obesity center, argued for an 18-percent tax on soda.

So far, the industries represented by Americans Against Food Taxes are “fighting this collectively,” says Dave Koenig, director of tax and profitability for the National Restaurant Association.

But restaurant lobbyists point out that such taxes could especially hurt their members because they would “only further reduce already-slim profit margins,” says Beth Johnson, NRA’s executive vice president of public affairs.

And Technomic’s Goldin notes that supermarkets “have a lot more power” than quick-serves do to counter pricing pressures from taxes thanks to constant coupons and loyalty-card promotions. “The higher food prices become,” he says, “the more that restaurants lose the battle with grocery stores.”

But Michael Jacobson, founder and executive director of the Center for Science in the Public Interest, says the effect of such taxes on quick-serves would be relatively less “because their markups are so outrageous.”

And Jacobson is one to listen to. He declined to say whether his and other groups might target high-calorie restaurant foods such as french fries or burritos next. But the group filed a lawsuit against Denny’s for its high sodium counts in July and before that sued Burger King for its use of trans fats.