Beverage Industry Uses Old and New Strategies to Block Soda Taxes

The battle over soda taxation at the state level rages on, as more and more cash-strapped states seek to close budget shortfalls and avoid cuts to critical services such as public safety and transportation. Officials in at least 20 cities and states have proposed new excise taxes or to remove existing sales tax exemptions on non-alcoholic drinks. The beverage industry has responded by spending millions of dollars on lobbying and advertising against the proposed beverage “sin taxes” since 2009.

In a recent twist, the beverage industry has offered the city of Philadelphia what it calls a $10 million “good-will-gesture donation” to fund health initiatives in the city if the city agrees to abandon its proposed excise tax on soda. As noted by a food industry analyst, the move “demonstrates just how much the soda industry fears any attempt to tax its product.” Although the $10 million may seem like a generous offer, Philadelphia’s tax proposal, in contrast, would have raised $77 million in revenues, with $20 million going toward obesity prevention.

In this article, we review the strategies the beverage industry has used to try to block efforts to tax soda and sugar-sweetened beverages at the federal level, and in several key localities, including New York State, Washington State, Maine, Philadelphia, and Washington D.C. We also present evidence that clearly demonstrates how the proposed taxes and presumed increase in the price of soda would help Americans lower obesity rates by reducing our per capita soda consumption.

Beverage industry blocks proposals to tax soda at federal level

A federal excise tax on soda was first proposed in September 2009 as one means of offsetting the cost of healthcare reform and reducing the nation’s high rates of obesity. Although the proposals did not get very far, several high-level talks did take place, including a Senate Finance Committee hearing and closed-door talks with members of the House Ways and Means Committee (1). In response, the beverage industry immediately mobilized a broad-based lobbying effort to quash any such proposal. The coalition operated under the name Americans Against Food Taxes, and included soft drink manufacturers, suppliers, and mass-marketers such as McDonald’s.

In Washington D.C., corporations such as Coca-Cola Co., Pepsi Co., and numerous fast food companies spent $18 million in lobbying activities, and several million more in campaign donations to officials (2). Television commercials, such as this one, which appealed to concerns of everyday families about affording groceries, cost over $10 million to produce and air in key districts (2).

The American Beverage Association also went on the offensive in response to the increasing scientific evidence on the link between increased soda consumption and weight gain. The industry group attacked the findings of nutrition researchers, and funded studies of their own that were more favorable to the beverage industry’s interest in keeping soda consumption high. Kevin Keane, senior vice president of public affairs for the American Beverage Association, claimed that researchers “pick and choose the facts that support their view and attack anyone who disagrees. It’s scientific McCarthyism” (2). The industry’s well-funded efforts to silence any talk of a federal tax on soda were ultimately successful.

New York State fails to pass revised soda tax proposal

Corporations and Health Watch previously reported on the failed campaign to implement a “penny per ounce” excise tax as part of an effort to help close some of New York’s 2009-2010 budget shortfall. After Governor Patterson first announced the proposal in December 2008, the beverage industry poured massive amounts of funding (over $3 million) into lobbying and other efforts to oppose the measure, often working under the coalition called New Yorkers Against Unfair Taxes. The American Beverage Association spent nearly $900,000 lobbying in New York State in 2009, up from zero dollars in 2008. This influx of money appears to have worked, as original supporters of the tax like Senator Jeffrey Klein (D-Bronx/Westchester) became instrumental in getting the proposal off the table. Senator Klein accepted $36,000 in campaign contributions from the beverage industry and related groups since the tax was proposed in December 2008, actions that coincided with his decision to reverse his position on the soda tax.

Given New York State’s unrelenting fiscal troubles and multibillion-dollar shortfall, Governor Patterson tried to revive his soda tax proposal for the 2010-2011 budget, this time with a “carrot and stick” approach that would have allowed for an exemption for diet drinks and bottled water. At the present time, soda, diet soda, and bottled water are subject to a sales tax, but Governor Paterson wanted to add on an additional excise tax of “a penny per ounce” which would be levied on the beverage bottler for sugary sodas, with a “carrot” of sales tax exemptions for water and diet sodas. Governor Paterson maintained that the public would support the proposal as long as “we can justify where the taxes are going” (3). However, the revised proposal failed as well, owing in large part to the American Beverage Association’s ability to dominate discourse on the issue by spending $9.4 million in New York State in the first four months of 2010.

Philadelphia forced to raise property taxes and slash public safety programs rather than tax soda

Another locality where proposals to tax soda have recently failed is Philadelphia, where an estimated 70 percent of children in the city’s poorest neighborhoods are considered to be overweight or obese, according to city data. There, the City Council has recently refused to vote on the proposal to tax soda and other drinks with added sugar. Had the original proposal by Mayor Nutter been successful, Philadelphia would have levied a 2-cent per ounce excise tax on sugary drinks as part of an effort to balance the city’s 2010-2011 fiscal budget. The proposed tax was eventually reduced to a working number of between ½ to ¾ cents per ounce, which would have raised an estimated $9 million to $14 million in 2010-2011. The proposed tax wasintended to avoid cuts to libraries, recreation and public safety.

In Philadelphia, area retailers, teamsters and beverage corporations came together to oppose the tax, claiming that it would lead to the loss of nearly 1,000 of an estimated 13,000 food store jobs, as well as 2,000 jobs in distribution and bottling. The beverage industry has been criticized for the role that it played in the defeat of this soda tax. Harold Honickman, a “beverage mogul” who owns Canada Dry Delaware Valley Bottling Co., and whose net worth is estimated at up to $850 million, became the face of the anti-soda tax coalition, when he stepped up to offer $10 million on behalf of the beverage industry for city health and recreation programs just weeks before the scheduled vote. Mayor Nutter commented that, “It seemed a little strange in the middle of this fiscal and public health issue, that out of nowhere an offer of money was made, essentially to make this go away. I don’t operate like that, and our government does not operate like that.”

With City Council members deciding not to vote on the soda tax, the Mayor was forced to find other means of closing the budget gap. In order to close the budget shortfall, Philadelphia will be forced to shed 339 city positions, in addition to slashing police and fire companies’ budgets, reducing libraries to four-day weeks, cutting $500,000 from shelters and supportive housing programs, and raising property taxes 9.9 percent.

Washington D.C. fails to pass soda tax to fund Healthy Schools Act

In Washington D.C., penny per ounce soda taxes were considered as a means of funding healthy school foods programs earlier this year. The bill would have mandated more physical education and that low-calorie and low-fat meals be served to the area’s approximately 70,000 students. In a preliminary vote in April of this year, the 13-member D.C. Council unanimously voted to back the Healthy Schools Act, without a soda excise tax attached. However, once the soda tax was attached to the bill, several weeks of intensive lobbying followed by groups such as the Maryland-Delaware-D.C. Beverage Association, and support for the penny per ounce tax quickly dwindled. Instead, the city decided to apply its 6 percent sales tax to soda and other sweetened beverages to fund the $6 million cost of the program.

Industry works to repeal taxes in States that have passed excise taxes

It is noteworthy that a few states – Washington, Maine and Colorado – were recently successful in passing excise taxes on soda, but the beverage industry has now stepped up efforts to overturn these taxes. In April, the Washington state legislature passed a tax of 2 cents for every 12 ounces of soda and other sugary beverage, with a 2012 expiration date. According to theWashington Post, the American Beverage Association soon began funneling money to its Washington State branch. The beverage industry coalition, operating under the name Stop Grocery Taxes, had has collected over 395,000 signatures which will place Initiative I-1107 “to stop the tax hikes on food and beverages” on the state ballot in November. A similar approach has already been successful in Maine, where two years ago the legislature passed a soda tax of 42 cents per gallon. Last November, the beverage industry spent over $4 million on its Fed Up With Taxes Campaign, which was successful in putting the tax on the ballot and encouraging voters to reject the tax.

The case for a soda tax

While industry groups claim that soda taxes are nothing more than a money grab from taxpayers struggling to support families, there is substantial evidence that increases in price will in fact reduce soda consumption. In a recent report by the USDA, it was estimated that a ten percent price increase would decrease purchases by 12.6%. Cathy Nonas, head of nutrition programs for the New York City Department of Health, has noted, “If the consumer sees the price difference when they’re about ready to buy the product, we do see a reduction in consumption of an unhealthy food.”

With Americans currently consuming approximately 50 gallons of soda per year (4), and nearly two thirds of American adults who are overweight or obese, a reduction in consumption of sodas and other high calorie beverages will translate to better health.

Note: The proposals described above deal mainly with excise taxes, which would be levied on the beverage bottler. Sales taxes, on the other hand, are levied directly on the consumer at checkout. Sales taxes are generally a percentage of the total cost, whereas excise taxes tend to be levied per unit or quantity (e.g., per ounce, or per a given quantity of syrup used). In addition, sales taxes apply to a range of products, whereas excise taxes are usually associated with a particular product category, such as alcohol or tobacco.

Excise taxes are generally considered preferable by health advocates in terms of their likely effect on price and consumption patterns, although few states currently have excise taxes on soda (exceptions include Arkansas and West Virginia). Soda and other sugar-sweetened beverages, despite their low nutrient content, are exempt from sales tax in many localities because they are considered “grocery items.”

By Lauren Evans, writer for Corporations and Health Watch and student in the Doctor of Public Health program at the City University of New York.

References

  1. Hamburger T, Geiger K. Soda tax fizzles; Targeting lawmakers and nutritionists, beverage firms put a stopper in the plan. Los Angeles Times. February 7, 2010.
  2. Geiger K, Hamburger T. States poised to become new battleground in soda tax wars; Lawmakers in California and elsewhere seek levies on sweetened drinks. Los Angeles Times. February 21, 2010.
  3. Madore JT. Proposal could be pain in the wallet; Paterson unveils new taxes, big cuts in budget plan; says $7.4B hole calls for difficult, necessary moves. Newsday. January 10, 2010.
  4. Bittman M. A sin we sip instead of smoke? The New York Times. February 14, 2010.

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