The Soda Tax Wars

April 20, 2010 - 4:40pm
Soda taxes

By Peter Dreier and Jake Blumgart. Published in the Huffington Post. April 20, 2010.

This is the year of the soda tax.

Last year, the Coca-Cola Company, PepsiCo, and the American Beverage Association (ABA) spent an unprecedented $37.5 million lobbying Capitol Hill to quash a proposal in Congress to tax soft drinks as part of a plan to pay for health care reform.

Coke and Pepsi are formidable industry players, controlling well over 70 percent of the $43.3 billion industry. In addition to their titular colas, the two companies produce the vast majority of the most well known soft drinks, including Sprite, A&W, Fanta, PowerAde, Nestea, Mr. Pibb [Coke] and Sierra Mist, Mug, Slice, Gatorade, Lipton [Pepsi].

Big Soda called the proposed soda tax a "job killer," a "slippery slope" towards more taxes and more government regulation and would do "irreparable harm" to an industry that provides "220,000 good-paying jobs with health benefits." According to Kevin Keane, ABA's senior vice president for public affairs, "Once government reaches into your grocery cart, your business could be next."

Having lost in Congress, public health advocates are now taking the battle back to the states. More than ten states (including California, Washington, and New York), as well as the city of Philadelphia, are now considering a tax on soda. Policymakers hope to check rapidly increasing obesity rates among children and adults, which governments often end up paying for in higher medical insurance costs, and explore an untapped revenue source in a tight budgetary year. Researchers have found that beverages high in added sugars are a significant driver of increasing calorie intake and obesity.

Big Soda is, understandably, exceedingly unhappy about this attack on their carbonated profits. Their response includes the standard arsenal of big business opposition tactics and arguments.

Armies of deep-pocketed lobbyists are marshaling astroturf front groups to give their enterprise a respectable air. And then there are the blistering press releases, replete with easily digestible talking points. These generally fall into two categories. Some are philosophical: It's unfair to single out one industry for taxation. Or, obesity isn't the government's role, it's about personal responsibility and good parenting. Or, obesity is only a result of lack of physical exercise and watching too much television (perhaps viewing those Pepsi and Coke ads!)

And then there are the allegedly hard-nosed economic objections: Soda taxes will drive businesses away, kill jobs, discourage fresh capital from investing in areas that make soda sippers feel unwelcome, and trigger future excise taxes on food. Or they proclaim that the tax is regressive because poor people are big soda customers.

The soda industry's reaction to New York Governor David Paterson's proposal for a penny-an-ounce tax that would raise $1 billion a year was typical. "This tax will threaten thousands of well-paying, New York jobs in the beverage and related industries," said ABA CEO Susan K Neely. "[And] burden hard-working New Yorkers with new taxes on their groceries, including juice drinks and soft drinks." (In fact, the tax doesn't cover juice drinks that actually have fruit juice in them).

But experience shows that Neely is wrong. Sodas represent what Dr. Francine Kaufman -- Professor of Pediatrics at the Keck School of Medicine of the University of Southern California and Head of the Center for Diabetes, Endocrinology and Metabolism at the Childrens Hospital Los Angeles -- called a "sugar delivery system," akin to tobacco's role as a "nicotine delivery system." Soda and tobacco can ultimately kill people, but soda or tobacco taxes don't kill jobs.

Soda taxes have existed in various states for decades, provoking little controversy. Tennessee passed a soda tax as early as 1937. West Virginia followed with a liquid levy of its own in 1951.

In 1992, both Ohio and Arkansas passed soda taxes as part of an effort to balance their crippled budgets. The taxes were hardly onerous: a penny per twelve ounces in Ohio, and two cents per twelve ounces in Arkansas. At that point, Big Soda went on the warpath. Despite the negligible size of the taxes, the industry feared a nationwide trend and reacted forcefully, mounting expensive campaigns to take the fizz out of the reform movement.

Soda distributors and bottlers, mostly affiliated with Coca-Cola and Pepsi, pumped millions of dollars into the two states to repeal the taxes. These efforts came to a head during in 1994.

The corporate carbonators whipped up considerable opposition through expensive campaigns that featured the typical "crying wolf" arguments about the negative consequences of taxes on consumer goods.

The more successful anti-tax campaign emerged in Ohio, where the Stop Taxes on Food Committee -- a front group primarily backed by the Pepsi and Coke twins -- spearheaded the repeal effort. The threat of other food taxes -- an unpopular proposition -- was the centerpiece of the repeal effort. Diana Winterhalter, a spokeswoman for the Committee, was quoted in the Cleveland Plain-Dealer: "If they could raise one (food tax), they could raise another one."

The industry attacked the tax as a money grab, an argument strengthened by the fact that the tax wasn't earmarked for a particular program, but simply sent to the state's general fund. A mere two years after Ohio's legislature passed the soda tax, citizens repealed it. The industry-backed referenda won by a 2-1 ratio despite the strong support of a coalition of labor, health care and education groups and then-Governor George Voinovich, a Republican, who claimed that 99 percent of the repeal funds came from Coke and Pepsi. Overall, Big Soda spent $9 million on the repeal campaign, compared with only $148,000 by the tax proponents.

"We believe we assured Ohioans protection against hidden taxes -- now and in the future -- against food," Winterhalter said upon Big Soda's victory. Voinovich saw it differently: "It's the most despicable, deceitful fraud perpetrated on the citizens," he said the day after the election.
While Ohio bent to Big Soda like a plastic straw, Arkansas has resisted efforts to repeal its soda tax. In 1994, and again in 1997, the industry has tried to get first voters, and then the legislature, to abandon it, and each time their efforts failed. In 1994, the soda lobby launched a multi-million dollar campaign against the tax, bringing in outside consultants, flooding T.V. and radio stations with ads. The industry went all out against the tax, fearing it might serve as a template for a national soda tax, or at least copy-cat state taxes. Despite this industry effort, Arkansas voters rejected the repeal by a healthy 55-45% margin.

Why? In Arkansas, the state legislature had smartly earmarked all the revenue from the tax -- which totaled more than $46 million in 2009 -- to the state's popular Medicaid program, providing an additional funding source to protect health care for the poor in times of economic stress. In contrast, Ohio had allocated all proceeds from the soda tax to the general fund, which was easily attacked as throwing the funds into the government bureaucracy.

Because Arkansas's soda tax has been preserved since 1992, its experience offers a good test of the industry's warning that imposing soda levies will lead to additional excise taxes on real food, or hurt the business climate in the restaurant and bottling industries.

In 1997, restaurant industry groups warned that the soda tax put Arkansas' economic future in jeopardy. In 1997, Wayne Dyer, executive director of the Arkansas Hospitality Association, argued that the tax hurt the state's business climate and Arkansas Business magazine, the mouthpiece for the state's Chamber of Commerce, relayed the message to its readers: "If there's one profit percentage in Arkansas and another in Tennessee, he [Dyer] says, where do you think a business will choose to locate?"

But the industry was crying wolf. For example, in late 1993, Back Yard Burgers, a Tennessee-based chain, bought five stores in Arkansas. When asked by Arkansas Business if the company had known of the tax before investing in Arkansas, Back Yard's chief financial officer Stephen J. King affirmed that they had, but said that they didn't care. "It really didn't enter into it at all," King assured the reporter. Since then, the firm has added another seven outlets in Arkansas.

Apparently, other business owners agreed with Back Yard Burgers' assessment. In fact, the total number of eateries, restaurants, and cafeterias in Arkansas is about the same as the numbers in Kansas and Mississippi, neighboring states with equivalent populations
The "job killer" canard doesn't ring true in Arkansas either. According to the U.S. Bureau of Labor Statistics, employment in the food and drink services sector increased by 6 percent in the two years after the soda tax was adopted, the highest increase since the Labor Department began collecting the data. From 1992 to 2008 private employment in Arkansas' Food Services and Drinking Places increased by 57.5 percent, twice the rate of total private sector employment in the state.

The bottling industry in Arkansas is holding up, too. The total "soft drink manufacturing" establishments in Arkansas outnumber those of two neighboring states, Kansas and Mississippi, every year surveyed, as do the number of people employed by these businesses.
What of Big Soda's claim in its successful Ohio repeal effort that soda taxes would lead to government taxation of actual food products? Wrong again. Arkansas has not leveled an excise tax against any food product.

The Arkansas soda tax has not brought economic ruin to the state's business climate. It hasn't dissuaded restaurant growth or employment. It hasn't driven bottlers out of Arkansas and into the surrounding states. And it hasn't led to the taxation of actual food.

What is has done is raise funds for the Arkansas Medicaid program, bringing health care to the state's poorest citizens.

"It has ensured, up until now, we didn't have to make cuts to our Medicaid program," said Elisabeth Burak, health policy director of Arkansas Advocates for Children and Families. "The soda pop tax is a very good thing. It is an important reserve fund to protect Medicaid when the economy goes down, and it is serving its exact purpose right now."

What are lessons of the Arkansas soda tax?

First, business warnings that new taxes are automatic "job killers" are typically bogus. The impact of new taxes depends on myriad factors that corporate propagandists ignore.

Second, reformers who want to push big business to be more socially responsible need to be armed with the facts to counteract the corporate PR machine.

Third, voters want to know how their taxes are being used and whether they are used effectively. In the case of Arkansas' soda tax, they know that the money is going to help the most vulnerable of their fellow citizens. Ohio's voters just saw the money being shoveled into the general fund, and voted with the industry, despite the fact that their tax was half the size of its Arkansas counterpart. A Quinnipiac University poll conducted April 6 found that only 31% of voters said they support Gov. Paterson's soda tax, but almost half said they'd support a "fat tax" if the money was used to finance health care (which is actually part of Paterson's proposal).

Arkansas is hardly a liberal state. But it has held onto its two cents per twelve ounce soda tax for 18 years -- in the face of organized business opposition -- because the citizens know when Big Soda is crying wolf.

As more and more cities and states debate whether to enact soda taxes to generate more revenue and combat obesity, it would serve them well to consider the Razorback State and see for themselves that they don't have to swallow Big Soda's lies.

Originally posted on Huffington Post, April 20, 2010


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