Candy tax proposal: "If they really want to tighten up America, make them cut out the Big Macs"

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Governor Bill Ritter's proposal to place a sales tax on candy and soda is far from sweet according to Rick Enstrom, an owner of Grand Junction-based Enstrom's, one of the state's most venerable candy companies.

Enstrom is scheduled to testify about the measure at 1:30 p.m. today before the Colorado House appropriations committee -- read his remarks in their entirety below. He'll be speaking on behalf of his own business and the National Confectioners Association, which sees such revenue-generating measures as discriminatory. Enstrom does, too.

"I don't know why they're singling out an industry that's comprised mostly of small family businesses," he says.

Enstrom, who -- full disclosure -- is a longtime family friend of yours truly, traces the trend toward taxing candy to Chicago, which enacted a similar measure last year. "They did it at the eleventh hour, and they didn't tell anybody about it in advance," he says. "So I'll give Governor Ritter credit for at least being open and honest about it instead of doing things the Chicago-politics way. But we still don't think it's fair."

Among Enstrom's complaints:

"We hate to see the government legislate a tax on candy that vilifies products that we manufacture and communicates to consumers that it's to be avoided -- that it's in the same category as tobacco."

Besides, he continues, "Less than 2 percent of people's diets are made up of sweets. If they really want to tighten up America, make them cut out the Big Mac -- but nobody wants to go there."

In addition, some of the specifics of the measure strike Enstrom as absolutely mystifying. For one thing, "they say that if it contains flour, it's not candy. That's part of the bill, part of the description. So a dipped pretzel or a dipped Oreo is not candy, but a dipped strawberry is?"

The presumably negative repercussions of the tax on Enstrom's could hardly be timed worse, he allows -- and the damage wouldn't stop at his front door.

"We've lost money the past couple of years," he concedes. "And last year, we paid $3.5 million to 340 different Colorado vendors -- and we spent $1.6 million with FedEx, another huge Colorado employer. So it's not just Enstrom's Candies the legislators are conveniently goring here. We also make a lot of contributions to a lot of different things, including Mesa State College and St. Mary's Hospital [in Grand Junction]. As our profit margin diminishes, those are the first things that have got to go."

Because the tax "comes off the bottom line," Enstrom says, the cost will have to be passed on to consumers -- and as a result, "they're going to order less. And as I say in my testimony, we depend on a lot of families, and a lot of families depend on us."

Here's Enstrom's planned remarks in their entirety:

Testimony on House Bill 1191


House Committee on Appropriations

Rick Enstrom

Family Member and Regional Manager

Enstrom Candies

On behalf of Enstrom Candies, based in Grand Junction, and other confectionery manufacturers across the state of Colorado, I urge you to oppose the proposal to repeal the sales tax exemption for candy and confectionery products in HB 1191.

The tax impacts Colorado businesses

While we are sympathetic to the state's budget challenges, Enstrom Candies is opposed to the creation of a new tax on candy as a means to increase state revenues. The adoption of a discriminatory tax on candy will have a huge impact on many small confectionery businesses and make it even more difficult to survive during these difficult economic times. Our family has been manufacturing and selling our confections in the state of Colorado for 50 years. Our humble beginnings were rooted in this State Capitol by the company's founder, my grandfather Chet Enstrom, a former state Senator and JBC member that went down this five miles of bad dirt road you are enjoying today.

Last year, our sales were down because of the economic recession, and made it necessary to lay off members of our work force. Last year, Enstrom's employed 146 Colorado citizens, with a payroll of $3,776,000. We provide health, eye, and dental insurance and contribute to our full-time employee's 401K plans. Enstrom's also made over $80,000 worth of charitable contributions to St. Mary's Hospital, Mesa State College and countless other philanthropic endeavors in CO last year, which, as you well know, are the first items to be slashed in downsizing necessity.

In addition to the possibility of this dramatic increase in cost on candy to the consumer, we are experiencing a cocoa cost that is at an historic high. Cocoa is trading at three times the price it traded at five short years ago. So what do we do? We can't simply raise candy prices. We have to take lower margins and hope for things to recover or for volume to increase so our gross sales will make up for the shortfall in margin. The last thing we need or can afford in these difficult times is to negatively impact the price of our product to the consumer resulting in fewer sales and further reductions in earnings.

We paid over $3,300,000 to 340 different Colorado vendors last year that will be indirectly affected by this tax, and spent over $1,660,000 with FedEx, a huge Colorado employer that delivers our products and moves product between our stores.

Candy taxes should not be used to compensate for health funding deficits in our state. Occasionally, legislators claim that the aim of these discriminatory taxes is to help curb the obesity epidemic in the U.S. The reality is that Americans' health status and the issue of obesity is far more complicated than that. The fact is that candy represents less than 2 per cent of the calories Americans consume; it is a delicious small pleasure which can be enjoyed as part of a healthy active lifestyle. Our Almond Toffee is all natural and we pay a premium to make sure that it tastes and looks wonderful and reflects well on our family. Did you know that chocolate is the food highest in antioxidants? Chocolate contains more heart healthy antioxidants than blueberries. I would hate to see the government legislate a tax on candy that would vilify the products we manufacture and communicate to consumers that it is to be avoided in a healthy lifestyle; in the same category as tobacco.

Colorado confectionery families do not want a tax on our products, especially one that has the potential to unfairly associate candy with negative health issues.

The tax discriminates against certain products

Tax policy should not interfere in the marketplace to distinguish among arbitrarily created food classifications. Doing so advantages some and disadvantages others on the basis of speculation, not science. The proposal under consideration would place confectionery products at a competitive disadvantage compared to other foods with a similar nutrient profile including cakes, cookies, and ice cream. Confectionery items can provide many of the same vitamins, minerals and nutrients found in other food products. Discriminating between these items for tax purposes cannot be justified on a nutrition basis.

The tax is complicated to implement

In the big picture, separate tax categories for food create confusion and compliance problems for those who must collect the tax. The definition of "candy" especially the definition under consideration in HB 1191 is not straightforward. The lines between what is considered "candy" and what might be a product in the broader "snack" market are increasingly blurred. Other state Departments of Revenue have struggled to fairly capture the segment through regulation. For example, under HB 1191, a chocolate covered strawberry will be taxed, while a chocolate covered pretzel will not. Discriminating between these items for tax purposes cannot be justified. These ambiguities become real collection and enforcement issues at the retail level, especially for retailers that lack scanning equipment. Small businesses in Colorado do not need this additional burden. It makes more sense from a tax policy standpoint to treat all food the same.

The tax is regressive and voters don't like it

Taxes on food are also among the most regressive taxes imposed in America. Low income persons spend a larger portion of their income on food purchases than do the more affluent. It is the poorest citizens who will bear a disproportionate share of the burden imposed by discriminatory food taxes, including the elderly. Not surprisingly, food taxes are among the least popular taxes with voters.

We are hopeful that 2010 will see an improvement in the economy so that we can continue to provide employment for the families that we depend on, and that depend on us. All our Colorado families strongly urge you to oppose this tax. Thank you.

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