Once Again, Pfizer Is Trying to Move Overseas to Avoid U.S. Taxes
It's been a long, hard road, but it seems as if Pfizer Inc. might finally succeed at self-deporting itself in order to escape the IRS. The U.S. pharmaceutical giant announced Monday that it plans to merge with Ireland-based Allergan in a $155 billion deal that would set up the largest "corporate inversion" in history while also creating the world's biggest drugmaker by sales.
Inversions, you may recall, are transactions that allow U.S. companies to move their headquarters overseas by merging with a smaller foreign company, and thereby avoid U.S. corporate income taxes. For their part, Pfizer and Allergan plan to shack up together in Dublin, where the newlywed couple will be renamed Pfizer PLC and continue trading on the New York Stock Exchange while paying a projected tax rate of about 17 or 18 percent, down from Pfizer's current 25 percent tax bill. This is Pfizer's second high-profile attempt to move abroad. Last year, it tried and failed to purchase U.K-.based AstraZeneca, whose management resisted the deal, arguing it undervalued their company.
While any sort of business can theoretically use an inversion to reduce its tax burden—Burger King arranged a tie-up with Tim Hortons as an excuse to move to Canada last year—the pharmaceutical industry has been especially keen on this maneuver. There seem to be a few reasons why. America's corporate tax code is unusual in that it taxes profits earned abroad, which makes it especially irksome for drugmakers, which sell their products all across the globe. There are also lots of pharma companies based in Europe, which means there are plenty of merger targets for American firms considering an inversion. Beyond that, there's a follow-the-leader effect at play—pharma companies that don't invert are worried that paying higher U.S. taxes will put them at a competitive disadvantage against those who do manage to move overseas.
These deals are obviously a sign that some companies find the U.S. tax system inhospitable. Conservatives have typically cited them as proof that the entire corporate code needs an overhaul—one that, in all likelihood, would involve lowering rates to make ours a bit more competitive with the rest of the world's. But, frankly, it might not be worth getting too worked up over inversions, since at this point they're still fairly rare, and it's not 100 percent clear how they affect our economy.
Keep in mind that when they invert, companies like Pfizer are basically moving their official postal address and not a ton more; it's not as if Pfizer is uprooting all of its factories and R&D and moving them to Dublin, too. As Matt Gardner, executive director of the Institute on Taxation and Economic Policy, put it earlier this month, “An inversion by Pfizer would very likely amount to pretending to be Irish, much like the Notre Dame mascot.” The merger will probably deal a slight blow to U.S. gross domestic product, since the profits from inverted companies earn aren't counted toward our national accounts. But that's not exactly crushing, since at least some of the money will probably get sent back to U.S. investors in the form of dividends. As for taxes, well, Congress' number-crunchers think inversions will cost the U.S. Treasury about $41 billion over 10 years. However, some recent research out of Northwestern's Kellogg School of Management suggests that might be off—and that, weirdly enough, inversions might actually increase American tax collections by allowing companies to bring money they were previously hoarding overseas back to their U.S. operations and hand it out to shareholders.
Economic implications aside, Pfizer’s move can still be interpreted as a bit of a middle finger to the Treasury Department, which just last week announced a new set of rules specifically designed to discourage inversions. Sorry Jack Lew. Big pharma, it seems, don’t care.
Fitness Tracker–Maker Jawbone Just Laid Off 15 Percent of Its Staff
The struggling fitness tracker manufacturer Jawbone just suffered another jab. On Thursday, the 16-year-old wearable company laid off 60 employees—15 percent of its workforce—according to TechCrunch. The company is also shuttering its marketing-focused New York office and downsizing operations in Sunnyvale, California, and Pittsburgh. But it will continue to make its Up wrist trackers, Jambox speakers, and Bluetooth headsets.
In a statement, a Jawbone spokesperson attributed the bloodletting to a “streamlining” strategy:
Jawbone’s success over the past 15 years has been rooted in its ability to evolve and grow dynamically in a rapidly scaling marketplace. As part of our strategy to create a more streamlined and successful company, we have made the difficult decision to reorganize the company which has had an impact on our global workforce. We are sad to see colleagues go, but we know that these changes, while difficult for those impacted, will set us up for greater success.
These are the second round of layoffs for Jawbone this year. In June, Jawbone laid off 20 employees—4 percent of its workforce—right after receiving a $300 million loan from the private equity firm BlackRock and getting involved in a messy patent infringement suit with Fitbit. Jawbone accused its rival in wearable tech of “systematically plundering” company secrets by poaching Jawbone employees, as Slate’s Alison Griswold reported at the time.
Jawbone has also struggled to deliver on its products. The new Up3 fitness tracker, released in May, received less-than-stellar reviews. And although it was designed for swimmers, the tracker wasn’t that water-resistant. This made it nearly impossible for the company to compete in the highly competitive wearable market.
This Kickstarter Promised a Smart Beverage Cooler That Also Charges Phones. Its Backers Are Pissed.
The contraption known as the Coolest, a portable outdoor party station that not only holds ice but will also blend your drinks, play your music, and recharge your phone, is getting a cold shoulder from its Kickstarter backers. The company recently began selling the Coolest for $499 on Amazon, which would seem like a good thing—sales being the aim of most new products. Except that the Coolest is leaving many of its backers, who have put up some $13 million, out in the you-know-what.
The Coolest is short of coolers and cash because of production issues. Sponsors were supposed to be the first to receive the Coolest, and they are deservedly hot about it, blistering the company in Web posts. Founder Ryan Grepper explained that the Coolest is selling its inventory to the public to generate operating funds. He blamed the lack of product on a strike at a supplier that makes the blender motor. There was no backup supplier, in part because the motor's specifications are so over the top, to enhance durability. "We spent so much time testing this motor to make sure it would stand up for the long life of a Coolest, and it really felt like a sucker punch to have our supply suddenly cut off without warning," Grepper said in a post. Not having a backup supplier, he admitted, is a rookie mistake.
Now the long-delayed delivery to backers is being pushed back again while the company scrambles to get another supplier up to speed. If things go well, production will restart on Dec. 20.
Then again, things haven't been going particularly well for the Coolest. Like many startups, it fell behind schedule for its product launch. And unlike software, or a service that can be changed on the fly, building the ultimate cooler became more of an engineering test than the Coolest bargained for. None of the individual pieces of this thing—a cooler, blender, waterproof Bluetooth speaker, lid light, and lithium battery or USB charger—represents any particular technological challenge. But integrating them into a single product obviously complicates sourcing and manufacturing. So does building them to the tough specifications for outdoor use that the Coolest demanded in order to be able to command the premium $499 price.
With the recent high-profile failure of Zano, a nano-drone-maker, there's a bit of griping that the Kickstarter model is somehow at fault. Which seems a bit odd. Crowdsourcing is a logical way to select promising ideas for development and then spread the risk of executing the business model. Failure is an inevitable and valuable part of the process, in that it then diverts investor capital to other projects. The fact that some of the Coolest's investors are currently out 500 bucks is clearly irritating, especially if you can't mix a margarita on your next camping trip. But maybe they need to just chill.
Calling Himself a Socialist Was One of Bernie Sanders’ Smartest Moves
Bernie Sanders famously likes to refer to himself a “democratic socialist.” Not content to label his views as merely liberal or progressive, the presidential candidate reaches all the way for the S-word, which has been basically verboten in post–World War II American national politics. This has led to some debate over what, exactly, a "democratic socialist" actually is, and whether one can accurately or usefully call the man any kind of socialist at all, given that his views actually line up quite well with those of many fairly mainstream members of the American left. The discussion has even sucked in the prime minister of Denmark, which Sanders has held up as a possible model for the United States. (Denmark, the prime minister would like us to know, is “far from a socialist planned economy.”)
So Thursday, during at speech at Georgetown University, Sanders defined his terms. His talk didn't contain any huge surprises. "I don’t believe government should take over the grocery store down the street or own the means of production,” he said, thus disavowing the strict Marxist definition of socialism with a dose of grandfatherly humor. “But I do believe that the middle class and the working families who produce the wealth of America deserve a decent standard of living and that their incomes should go up, not down. I do believe in private companies that thrive and invest and grow in America, companies that create jobs here, rather than companies that are shutting down in America and increasing their profits by exploiting low-wage labor abroad.”
In short, Sanders believes in a basic market economy with a large welfare state and a healthy amount of regulation. He would like a $15 minimum wage. He would like free tuition at public colleges. He would like the wealthy and corporations to pay more taxes. He would like single-payer health care.
Whether you think it makes strict sense to call all of this “democratic socialism” is obviously going to depend on your view of the term “socialism.” As I've written before, it's certainly not what revolutionaries in 19th-century Europe had in mind, given that they very much wanted to seize the means of production. Bhaskar Sunkara, founder of the socialist magazine Jacobin, is upset that Sanders doesn't emphasize “power” more in his formulation. But as Dylan Matthews has argued, it's also fair to think of modern socialism as a reform movement that evolved from the hardcore Marxist parties of old, and decided to accept capitalism while sanding off its rough edges with a larger welfare state. In that view, the European social democracies that Sanders so admires are just socialism's more mellow grandkids.
In the end, it's not really useful to get bogged down in arcane arguments about terminology. Sanders uses socialist because it signifies that he wants to see fundamental changes in politics. He talks sincerely about a “political revolution” that will bring more Americans out to vote for their interests, and in that sense, take power. “When I use the word socialist, and I know some people are uncomfortable with it, I say it is imperative that we create a political revolution, that we get millions of people involved in the political process, and we create a government that works for the many, not the few,” he said during a question-and-answer session. It's a lot easier to talk about "revolution" and distinguish yourself in the eyes of voters when you're willing to rhetorically signify a hard break with the rules and mores of mainstream American politicking. And, given the way so many Democrats have responded, it's turned out to be surprisingly good branding. Strictly apt or not, calling himself a socialist might have been one of Sanders' smartest moves.
Why Ted Cruz’s Massive Tax-Cut Plan Frightens Some Conservatives
Sen. Ted Cruz has promised to abolish the Internal Revenue Service if he's ever elected president, so you might fairly assume that his tax plan would be nothing but bleeding red meat for the political right. And yet the man's proposal—which, depending on whom you ask, could cost the government anywhere from $3.7 trillion to $16.2 trillion over a decade1—has managed to spark a pretty lively argument among conservative policy thinkers, some of whom worry that it might accidentally set the stage for much, much higher taxes in the future should Democrats ever take back control of Washington.
Why the agita? Cruz would like to shred much of the existing tax code, eliminating the corporate income tax, the payroll tax, and the estate tax, while replacing today's seven personal income tax brackets with a single, 10 percent flat tax. Unfortunately, even in the laissez-faire Candyland of the Republican imagination, the government would still need a bit of cash to keep Capitol Hill's lights on. And so, in order to avoid bankrupting the United States entirely, Cruz would impose a new, roughly 19 percent "business flat tax." This is his campaign's creative rebranding of what the rest of the world typically calls a "value-added tax," or VAT. And rationally or not, it scares the living hell out of some conservatives.
A VAT is basically a national sales tax. To make sure that the government gets all the money it's owed, the tax it's levied on companies at each stage in the chain of production. So a hog farmer in Iowa would pay the VAT on the pigs it sells to Hormel; Hormel would pay it on the bacon it sells to Walmart; and Walmart would pay it on the bacon it sells to its customers. The important thing is that, in the end, the full cost of the tax gets passed along until it's finally paid by consumers. While exotic to us Americans, VATs are commonplace around the globe. According to the accounting firm KPMG, 160 countries currently use a version of one; the United States is the only major developed nation the doesn't.
Some economists like the VAT in concept because, as a consumption tax, it shouldn't discourage saving or investment. Unlike a corporate income tax, it also doesn't push companies to hide their profits offshore. But for Cruz—and for Rand Paul, who, while basically a nonentity in the race at this point, would similarly like to combine a VAT and flat income tax—the main appeal is that it could theoretically raise a lot of money to finance tax cuts elsewhere, which, in the scheme of his larger plan, would probably have the effect of shifting much of the nation's remaining tax burden from high earners onto middle-class shoppers.2
How much could Cruz's proposal net the government? The conservative-leaning Tax Foundation thinks $25.4 trillion over 10 years.3 Not enough to make up for all of Cruz's cuts elsewhere, but not nothing either.
Cruz and Paul aren't the first major Republican figures to embrace a VAT. Paul Ryan, for instance, actually included one in his 2010 budget plan. But the idea of a VAT has always made some conservatives deeply uncomfortable, because they worry that in the hands of a Democratic president, it could become a hidden money-making machine for the government. Passing a national sales tax would be hard, they say. But once it's in place, slowly ratcheting it up to pay for additional spending would be relatively easy. “To be blunt, unless there’s a magic guarantee that principled conservatives such as Rand Paul and Ted Cruz (and their philosophical clones) would always hold the presidency, a VAT would be a very risky gamble,” Daniel Mitchell, a senior fellow at the libertarian Cato Institute, wrote recently. His Cato colleague Chris Edwards frets that subbing out income taxes for a VAT would create "a mirage of cheap government.”
And they might sort of have a point. If you've ever been on a European vacation, you've probably noticed that your receipts have a little line for the VAT tax on each of your purchases. So the idea that the French and Italians are walking around blissfully unaware of the sales taxes they pay each day to fund their welfare state seems a little silly on its face. But Cruz's plan in particular seems designed to be especially invisible to the public. Whereas most VATs function on something called a "credit invoice" system that helps make the fact that the VAT is a sales tax deeply obvious, Cruz's borrows an approach from Japan called the “subtraction method,” which is a bit more oblique. In it, companies simply pay a levy on their total revenues minus the goods and services they buy from other companies (essentially, the government taxes the money that goes to salaries and profits). Economically, it works out the same as the invoice approach, but administratively it looks a little bit more like a regular corporate income tax, and it might make companies less likely to let shoppers know how much of their purchase is going to the government.
Of course, there would be nothing stopping Walmart from letting you know that 19 percent of the cost of your bacon is heading to Washington. My guess is that they would. But that still might not assuage worried conservatives, since most people don't carefully track their receipts and would therefore have little idea of how much total tax they'd be paying. And, as a rule, Republicans like the process of paying taxes to be as excruciating and intrusive as possible so people will not only understand but resent how much of their paycheck they're losing.
The ironic thing here is that Ted Cruz, anti-tax preacher, may be doing his best to craft a tax plan that leaves Americans in the dark about the actual cost of running their government. Simultaneously, he might be making political room for Democrats to start talking about a VAT tax of their own, since the subject is now fair game in Republican circles.
But, when push comes to shove, I'm pretty sure most on the right would be perfectly happy if the Cruz plan passed into law. A multitrillion-dollar tax cut is a multitrillion-dollar tax cut, after all.
1 Yes, I'm quoting the Tax Foundation's static estimate on the low end. Its dynamic estimate, which factors in assumptions about tax cut-driven economic growth, says it would only add $768 billion to the deficit.
2 Cruz has pitched his plan as a 16 percent tax. That's, at best, half-true. In his system, if you spent $119 on a very nice sweater, $19 of that would go towards the VAT. Most of us would think of that as a $19 sales tax on a $100 product. But because $19 is only 16 percent of $119, Cruz is citing the "tax-inclusive" rate of 16 percent. Which, I mean, come on.
3 For various reasons, it's probably best to think of this as a high-end guess. Citizens for Tax Justice, which produced the $16.2 trillion cost estimate for Cruz's plan, thinks his VAT would probably raise far less. If the public demands it, I might just write a post getting into why their estimates are so wildly different.
*Correction, Nov. 19, 2015: In the original version of this article, I stated that some economists like consumption taxes because they don't discourage work (or saving and investment). That was wrong—as Harvard's Greg Mankiw lays out in this old blog post, both consumption taxes and income taxes could, theoretically, dissuade people from working, since their earnings will still buy them less. (You can find a longer version of the argument from Robert Carroll and Alan Viard here). That said, the extent to which any taxes actually discourage labor is somewhat controversial.
Uber Got Dealt Another Blow in the Lawsuit That Threatens Its Business Model
At the start of September, a federal judge dealt a major blow to Uber when he granted class-action status to drivers suing the company. Now the courts have handed down another. On Tuesday, the 9th U.S. Circuit Court of Appeals denied Uber’s request to appeal that class certification ahead of trial. The court didn’t rule on the merits of the class certification itself and could still choose to do so if Uber appeals again at the end of the case, or if changes are made to the size of the driver class. Effectively, though, the denial has cleared the way for the plaintiff drivers to prepare for trial, currently scheduled for June 2016.
The case deals with one of the big question marks in the so-called gig or “sharing” economy: worker classification. The drivers in the suit allege that they have been misclassified as independent contractors and that the amount of control Uber exerts over their work makes them employees in everything but name. Uber argues that its drivers enjoy the flexibility the platform affords them in a way that traditional employees couldn’t. On the issue of class certification in particular, Uber has insisted that there is “no typical Uber driver” and so any class wouldn’t be appropriately representative. (When U.S. District Court Judge Edward Chen granted class action status to the drivers in September, he seemed decidedly unimpressed by this line of argument.)
Ted Boutrous, partner at Gibson Dunn and the lawyer representing Uber on the case, said in a statement that the company looks forward to “presenting the facts about how drivers use Uber with complete flexibility and control over their work to a jury in 2016.” Shannon Liss-Riordan, the lawyer for the drivers, told Reuters that she was happy with the decision and would focus on preparing for the trial.
What’s still unclear is how big the class of drivers will be. The initial California class action covered about 160,000 current and former Uber drivers, but when Judge Chen granted class-action status in September it was only on certain counts—such as on the question of whether they are independent contractors or employees. Uber has said publicly that the judge’s ruling would “certify only a tiny fraction of the class that the plaintiffs are seeking.” At any rate, the company would surely have preferred to see the class disbanded altogether before the trial rolled around.
Does Apple Still Deserve Its Reputation for Brilliant Design?
“Once upon a time,” begins an epic rant by two former Apple designers, “Apple was known for designing easy-to-use, easy-to-understand products.”
Apple is still widely known for that, of course. But it shouldn’t be, say Bruce Tognazzini and Don Norman, who worked for the company in an earlier era. Tognazzini was an early Steve Jobs hire and wrote Apple’s first human-interface guidelines. Norman’s career at Apple spanned the interregnum between Jobs’ departure in 1985 and his return in 1996. The two now work together as partners in a design consulting firm, the Nielsen Norman Group.
Two Companies That Make Tree-Shaped Air Fresheners Are Battling It Out in Court
Here is a fun story from the New York Times, about, of all things, car air fresheners. It takes place in a federal courtroom in Lower Manhattan, where on Monday two companies, Car-Freshner Corp. and Exotica Fresheners Co., convened to contemplate their scented paper pine trees and palm trees. From the Times:
Car-Freshner sells Little Trees in a cellophane package topped with a yellow card emblazoned with a green tree logo and the product name written in an upward-slanting direction. Its fragrance varieties include “Morning Fresh,” which is a pink tree; “New Car,” which is blue; and a vanilla tree with an American flag pattern on it.
Exotica also sells its tree-shaped fresheners in a cellophane package topped with a yellow card emblazoned with a green tree logo and the product name written in an upward-slanting direction. Its fragrance varieties also include “Morning Fresh,” which is a pink tree; “New Car,” which is blue; and, yes, a vanilla tree with an American flag pattern on it.
The big difference between the two? Car-Freshner Corp. sells pine trees; Exotica sells palms. The companies appeared before a judge because Car-Freshner is suing Exotica for trademark infringement. Car-Freshner explains in a filing that for more than 60 years it has been the maker of “world famous air fresheners in the distinct Tree design shape sold under the LITTLE TREES brand.” Car-Freshner alleges that Exotica Fresheners “has a long history of attempting to free-ride” on its “goodwill and reputation by using confusingly similar packaging, scent names, and logos in connection with its competing air freshener products.” This alleged infringement “dates back to at least as early as 1995, when Defendant infringed Plaintiffs’ federally registered trademarks, ROYAL PINE and VANILLAROMA.”
Car-Freshner argues that the close resemblance of Exotica’s products and packaging to its own are likely to degrade the brand and trick customers into purchasing an off-label air freshener. Exotica, for its part, maintains that any branding overlap is superficial. As the company’s lawyer David Antonucci reportedly put it to jurors: “Pine versus palm? Please. The Pepsi swoosh versus the Coke swoosh? I think we can see the difference.”
The trial is expected to take four days; Car-Freshner would like to see Exotica stop using designs that closely mirror its own and is also seeking monetary damages. Until then, beware of all palm trees posing as pines.
Hillary Clinton Was Right in That Minimum Wage Fight and Her Rivals Were Wrong
Who is Alan Krueger and why did his name come up when Bernie Sanders, Hillary Clinton, and Martin O’Malley were arguing over the minimum wage Saturday night at the Democratic debate on CBS? And is he a Wall Street crony like O’Malley suggested, or a progressive economist like Hillary said?
Krueger, the former chair of President Obama’s Council of Economic Advisers and a professor of economics at Princeton University, published a paper in 1994—along with David Card at the University of California, Berkeley—looking at the impact on employment after New Jersey raised its minimum wage in 1992. The two men studied hiring patterns at fast food outlets located near the border between New Jersey and Pennsylvania, a neighboring state that did not raise its minimum wage at the time. The result? No job loss for the New Jersey dining establishments. There was, in fact, a slight move toward more full-time work.
This was an unexpected result, to say the least. Economists believed jobs would be lost when the minimum wage was increased, because employers wouldn’t be able to afford to hire as much labor. Some have since performed other studies to show that raising the minimum wage does result in job losses. (As Annie Lowrey noted in the New York Times a few years back, “As always in economics, nobody seems to agree on anything.”) So, based on these other studies, the idea that job losses go up when the minimum wage does remains the conventional wisdom in conservative and Republican circles. Jeb Bush, for example, claimed a few months ago that an increase in the federal minimum wage would “make it harder and harder” for people to get on the “first rung” of the employment ladder. It was a big issue in the last Republican debate as well, with multiple candidates adamantly opposing minimum wage increases. (There is also the idea that a higher minimum wage will lead companies to send jobs to countries where they can pay employees less, which is what Donald Trump was referring to when he claimed “wages [are] too high,” in that debate).
On the other hand, supporters of the raising the minimum wage now use Krueger and Card’s work, in part, to make their case. Why wouldn’t they? As Matthew Yglesias put it a few years back in Slate, “The David card/Alan Krueger empirical study showing no negative employment impact from a minimum wage increase is famous because it showed what liberals wanted to believe.”
But what is too low and what is too high? Sanders and O’Malley both support the goal of a $15 an hour minimum wage that is being pushed by groups like Fight for $15 and put into practice in cities like Seattle, San Francisco, and Los Angeles. “You have no disposable income when you make 10, 12 bucks an hour,” Sanders argued on Saturday night. “When we put money into the hands of working people, they’re going to go out and buy goods, they’re going to buy services and they’re going to create jobs in doing that.”
But that only works if people remain employed. That’s where Krueger comes back in. Last month, he published an op-ed in the New York Times saying an increase of the minimum wage to $15 an hour could “risk undesirable and unintended consequences.” The reason? There is, Krueger said, “no international comparison” for an increase of that magnitude. We would be sailing into the unknown. “Although some high-wage cities and states could probably absorb a $15 an hour minimum wage with little or no job loss, it is far from clear the same could be said for every state, city and town in the United States,” he added.
Clinton said Krueger’s position is why she supports a $12 an hour minimum wage. “I do take what Alan Krueger said seriously,” she noted, adding that—like Krueger—she supported efforts by individual states and cities to raise their minimum wage.
That’s when O’Malley jumped in with this attack: “We need to stop taking our advice from economists on Wall Street.” Hillary was quick to respond by defending the primary source for her argument: “He's not Wall Street. That's not fair. He's a progressive economist.” And she’s right! O’Malley might not agree with Krueger, but he is wrong about his work history. No longer a member of the Obama administration, he’s now back at Princeton University. He does not work on Wall Street. And Hillary is right to note that Krueger’s old work formed the basis for the progressive case for increasing the minimum wage, which means it’s fair to ask progressives to listen to him now.
This Startup Wants to Replace Sugar With ... Mushroom Roots?
Love at first bite. We have all experienced the rush from a forkful of cake, a fresh baked cookie or a bowl full of ice cream. The gratification we feel is the result of dopamine being released and activating the reward system in our brain, much in the same way that sex and drugs do. When you think about it like that, it is no wonder that we are a nation addicted to sugar. But much of the sugar we are consuming isn't the result of eating cake for three meals a day, rather because it is virtually inescapable. Out of 600,000 items found in grocery stores, 80 percent contained added sugar.
Long considered a staple in food processing, sugar is often used to mask naturally occurring bitter tastes. But as sugar's pernicious effects become more widely understood, consumers are becoming resolute in decreasing their intake. Of course, that is not without its challenges for food companies, since creating a tasty product is often at odds with creating a healthy one. "People aren't really willing to compromise on taste," said Alan Hahn, CEO, MycoTechnology. "They want less calories, but they still want it to taste great."
For Denver-based MycoTechnology, it believes the key to reducing added sugars in food can be found in gourmet fungi. Founded in 2013, the company has created an all-natural fermentation process called MycoSmooth whereby mushroom roots (mycelium) are trained to consume bitterness found in foods and in turn infuse the source with immune boosting beta glucans. While the process might sound foreign to us, it is a role that mushrooms know well from nature where they act as the cleanup crew of the forest, pulling toxins out of the soil and giving back nutrients to the roots of trees.
Initially, MycoTechnology is targeting coffee and chocolate, which are two huge markets that rely on sugar to cover up inherent bitterness. The company said it is already in testing phases with several global food companies. For those looking to utilize MycoTechnology's process they will be able to do so through licensing, managed services with onsite support or finished products through private labeling. And with consumers keeping a more watchful eye on their food, Hanh believes big food companies will have no choice but to take notice. "The anti-sugar movement is growing rapidly, and people want options."
Darren Seifer, executive director and food and beverage industry analyst, The NPD Group, echoed those sentiments, "In 2014 sugar became the number one item adults say they are trying to avoid in their diets due to falling concerns around fat. Couple that fact with how simple carbohydrates have been blamed for our obesity epidemic, it would be of high importance for marketers to react appropriately to these shifts in consumer demands."
While grassroots efforts among consumers will have a hand in change, there are also bigger forces at work like the Food and Drug Administration. The agency has proposed updates to the nutrition facts that appear on food labels that would require companies to call out added sugars versus natural ones as well as provide a daily percent value. And just this week, the FDA came down with new recommendations stating that Americans over the age of three should consume no more than 12.5 teaspoons or 50 grams of added sugars per day. This is compared to the 22-30 teaspoons that most Americans ingest daily.
As food companies grapple with the changing market, many are turning to sugar substitutes like Stevia to sweeten products. But plant-based replacements often produce a metallic aftertaste that many consumers find unappealing. To deal with that issue, MycoTechnology developed a separate process called MycoZyme, which uses enzymes from mushroom that act as a natural bitter blocker. In July, the Chinese company and producer of Sucralose and Aspartame, Niutang, announced the launch of NiuVia Stevia, which utilizes the MycoZyme process.
While Hahn sees MycoTechnology's potential to tap into the $600 billion food market, reducing the amount of sugar found in food is an issue that is also personal to him. "We are just trying to make people healthier. I ate myself to type-2 diabetes over five years ago, and I started learning about food, and it really motivated me for this company and to have options for people."