Proposed Use of Tax Code to “Protect” Food Consumers Is Bad Policy and Unconstitutional

EnglishChip_lowGuest Commentary

by Chip English, Davis Wright Tremain LLP

Childhood obesity is a substantial problem worthy of serious discussion.  Unfortunately, legislators also appear to see it as an issue worthy of unsound and unconstitutional legislative action.  On July 25, 2013, Representative DeLauro, together with Representatives Lee, Defazio, Clay and Grijalva, introduced the most recent example of this food police problem.   H.R. 2831 would “deny any [IRS tax] deduction for marketing directed at children to promote the consumption of food of poor nutritional quality.”  The proposed legislation is both vague and overbroad and, more importantly, is an unconstitutional content, speaker, and audience targeted “tax on knowledge.”  H.R. 2831 cannot withstand First Amendment scrutiny.  Moreover, the proposal raises equal protection and arbitrary and capricious government action issues because government Speech Police would determine which marketing is “directed at children” and which food is of “poor nutritional quality.”

HR 2831 would amend the Internal Revenue Code to deny a broad array of travel, goods or services, gifts and other promotional expense deductions associated with “marketing directed to children” (persons under the age of 18)  of “poor nutritional quality” foods.  The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, would determine which foods are of poor nutritional quality by considering which foods are “inconsistent with the most recent Dietary Guidelines for Americans under section 301 of the National Nutrition Monitoring and Related Research Act of 1990 (7 U.S.C. § 5341).”  Leaving aside the policy question of whether the IRS, which is still dealing with determinations of which organizations qualify for charitable organization status, should be involved in determining which foods are of poor nutritional quality, government determinations of what marketing is “directed at children” and what food products are “inconsistent” with Dietary “Guidelines”, will inevitably be arbitrary and capricious because those terms are vague and ambiguous.

The denial of a deduction would be both speaker (marketers) and content (food of poor nutritional quality) based restrictions on speech.   But it is also audience based.  Presumably the existing business expense deduction would continue to be allowed for marketing of the very same foods to adults raising equal protection concerns.  Most importantly, the U.S. Supreme Court conclusively determined in 1936 that the use of tax codes to restrict advertising is a restriction of speech that can violate the First Amendment.  Grosjean v. Am. Press Co., 297 U.S. 233 (1936) (both Freedom of Speech and Freedom of the Press principles implicated by Louisiana’s law to impose a 2% percent license fee on the gross receipts of newspapers making any charge for advertising or advertisements and with more than 20,000 printed copies per week).   In Grosjean, the Court traced the history of the First Amendment back to England’s early prohibitions on newspapers that evolved into taxes on publications.   “These duties were quite commonly characterized as ‘taxes on knowledge,’ a phrase used for the purpose of describing the effect of exactions and at the same time condemning them.” 297 U.S. at 246 (emphasis added).  Such speech regulation through taxation is an “odious method[]” of regulation because it is “a deliberate and calculated device in the guise of tax to limit the circulation of information to which the public is entitled in virtue of the constitutional guarantees [in the First Amendment].” 297 U.S. 249 – 250.

Since the speech at issue in HR 2831 is commercial speech, the inquiry does not end with Grosjean.  Nothing in the legislative language or accompanying press release suggests that the authors are targeting deceptive or misleading advertising – all marketing directed at children would lose the deduction; there is already plenty of existing authority granted to FTC, FDA and private attorneys general to protect against such perceived ills. Thus, the analysis of  Zauderer v. Office of Disc. Counsel, 471 U.S. 626 (1985) (lawyer’s newspaper advertising was deceptive absent required disclosure language regarding legal responsibility for paying costs) does not apply to this law which seeks to restrict speech, not mandate additional disclosures.

Instead, the intended restriction on effective advertising would almost certainly be found unlawful under Cent’l Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557 (1980).  The press release accompanying the filing of the legislation claims that this legislation will be one tool to fight obesity; such a self-serving statement cannot be enough to satisfy the “substantial government interest test” for sustaining governmental restriction on commercial speech under Cent’l Hudson because the purpose of the legislation is to prevent the public from making bad decisions based upon that marketing (i.e., purchasing food of poor nutritional quality).  Id. at 564.  See Int’l Dairy Foods Ass’n v. Boggs, 622 F. 3d 628 (6th Cir. 2010) (Ohio lacked substantial government interest in prohibiting claims that milk is rBST free).  Moreover, the U.S. Supreme Court has “rejected the notion that the government has an interest in preventing dissemination of truthful commercial information in order to prevent members of the public from making bad decisions with that information.”  Thompson v. W. States Med. Ctr., 535 U.S. 357, 374 (2002).  Even if the proposed tax restriction could be found to advance a substantial governmental interest, the proposed solution cannot be said to be “narrowly tailored” under Cent’l Hudson since all marketing directed to children of foods of poor nutritional quality are lumped together and are legislatively determined to be in disfavor.

Representative DeLauro’s attempt to use the tax code to restrict advertising of foods she disfavors is unconstitutional under the First Amendment; the attempt also raises significant concerns of equal protection and introduces a new regulatory quagmire for determining what constitutes marketing directed at children and which foods “of poor nutritional quality” will bear the government’s new Scarlett Letter.

*The author acknowledges a September 7, 2007 WLF Legal Opinion Letter – “Bill Denying Tax Deduction for Drug Ads Unconstitutional” by Arnold I. Fried and John F. Kamp upon which this discussion builds.

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