Hold the Sugar: Representative Proposes New Tax on Sweet Drinks

NTU Foundation has been hard at work in the days leading up to and following Tax Day. In case you missed it, here are some of the policy papers, analyses, and blog posts highlighting our tax-related research.

• Policy Paper: A Complex Problem: The Compliance Burdens of the Tax Code

• Blog: It’s Tax-plicated: Complexity Rising with Obamacare Burden

• Blog: A Fast-Growing and Alarming Problem: Taxpayer Identity Theft

• Analysis: Tax Basics

We’ve also been featured in a number of news outlets recently, including Forbes, The New York Post, The Washington Times, CRN Talk Radio, and the TaxProf Blog.

Be sure to follow us on Twitter (@NTUF) for all the latest research and updates on behalf of concerned taxpayers.

Most Expensive

The Bill: H.R. 1687, the Sugar-Sweetened Beverages Tax (SWEET) Act of 2015

Cost Per Year: $13.4 billion (one year cost)

Although taxation’s most common function is raising revenue, policymakers sometimes implement new taxes in order to discourage certain behaviors or the consumption of products that carry a social cost. The most prominent examples of these policies are the so-called “sin taxes” levied on alcohol, tobacco, and gambling products.

These types of taxes are controversial policy tools. Opponents of sin taxes point out that they are intrusive and often times regressive. There can also be a conflict of interests when trying to curb harmful behaviors while also relying on revenue generated from their taxation to fund other programs. For example, the President proposes to fund a new $66 billion pre-K program with a tax hike on tobacco. Meanwhile, proponents argue that changing consumers’ behavior can lead to savings elsewhere (such as lower healthcare expenses, cleaner air, etc.) that offset the burdens imposed by the tax.

The prospect of reducing healthcare-related costs led Rep. Rosa DeLauro (D-CT) to reintroduce the Sugar-Sweetened Beverages Tax Act of 2015. H.R. 1687 would institute a new excise tax on sales of any beverages (excluding milk, infant formulas, or “nutritionally important” liquids) containing caloric sweeteners like sugar and high fructose corn syrup. The tax would be set at one cent per teaspoon of sweetener and  would be deposited into the Prevention and Public Health Fund in order “to fund initiatives designed to reduce the human and economic costs of Type 2 diabetes, obesity[,] dental problems, heart disease and other health conditions related to sugar-sweetened beverages.” The tax would also raise the shelf price of sodas and sugary drinks, creating a disincentive to purchase them.

There are currently 34 states (along with D.C.) that tax soda sold in stores, at an average rate of just over five percent. While some academics argue that the type of tax Rep. DeLauro has proposed could significantly reduce health care costs and the prevalence of obesity and diabetes, others question the efficacy and fairness of targeting sugary drinks, specifically, and not candy or other “junk foods” as well.

Together with a team of economists from the University of Illinois, the Rudd Center for Food Policy and Obesity developed a calculator that estimates the revenue that might be generated in each state from a one cent-per-teaspoon tax on sugar-sweetened beverages. The Rudd Center projects $13.396 billion in revenue if the tax was implemented in 2016, which NTUF assumes would all be towards new spending on the health-related objectives outlined in the bill. The highest revenues would be realized in California and Texas, at more than $1.1 billion each in 2016 alone.

      
Least Expensive

The Bill: H.R. 1824/S. 929, the Simplified, Manageable, And Responsible Tax (SMART) Act

Savings Per Year: $86.2 billion (one year savings)

As we found in our recent tax complexity study, the compliance costs of the current Tax Code are enormous – amounting to 6.1 billion hours spent on preparation and a $234 billion productivity drain on the economy.

Earlier in the year we reviewed several tax reform options introduced in Congress and also one offered separately in a white paper by two Senators. A new proposal was introduced in the House and Senate by Representative Mike D. Rogers (R-AL) and Senator Richard Shelby (R-AL) last week to coincide with Tax Day. The Simplified, Manageable, And Responsible Tax (SMART) Act would reform the current Code with an emphasis on simplicity, fairness, and efficiency.

Under current law for the 2015 tax year, individuals in the lowest income bracket earning up to $9,225 would owe 10 percent while those in the highest bracket would owe $120,000 plus 39.6 percent of the amount earned over $413,200. The SMART Act would eliminate all seven brackets and establish a flat 17 percent tax on income in its place.

The plan would also repeal all income tax credits, the Alternative Minimum Tax, and the estate, gift, and generation-skipping transfer taxes. Standard exemptions are retained in the proposal, and set at: $14,480 for a single person; $18,490 for head of household; $28,960 for a married couple filing jointly; and $6,240 for each dependent.

The 1040 form for 2014 was 2 pages long and contained 79 lines. Sen. Shelby’s office boasted in 2013 regarding a previous version of the plan, “[w]ith the SMART Act in place, taxpayers would file a return the size of a postcard.”

Wildcard

The Bill: H.R. 1682, the National Jazz Preservation, Education, and Promulgation Act of 2015

Cost Per Year: $3 million ($9 million over three years)

April marks the National Museum of America History’s Jazz Appreciation Month. With roots in late 19th- and early 20th-century New Orleans, and later developed in Chicago and New York, jazz music has been referred to as one of the most quintessentially American art forms. Early jazz artists melded elements of blues, gospel, and ragtime music, emphasizing improvisation and a rhythmic swing that resulted in the genre’s distinct sound. Music historians note that the music emerged as a “symbol of sensuality, freedom, and fun” in the post-World War I era that eventually paved the way for rock n’ roll, rhythm and blues, and other modern musical styles while transcending racial and cultural barriers.

Why is any of this of potential interest to taxpayers? In order to preserve the history and legacy of jazz music’s influence, Rep. John Conyers (D-MI) has introduced the National Jazz Preservation, Education, and Promulgation Act of 2015. The bill would provide the Smithsonian Institution with $3 million in federal funding per year in order to acquire, archive, and share important interviews and artifacts related to jazz music in America. It would also be used to fund and promote educational programs through the National Endowment for the Arts (NEA) and other state and local non-profits. A portion of the funds would bring performers to Smithsonian-affiliated venues as part of a “National Jazz Appreciation Program.”

The NEA currently promotes a Jazz Masters Fellowship, which honors “a select number of living legends who have made exceptional contributions to the advancement of jazz.” In FY 2015, the NEA spent about $146 million in total appropriations.