Soda Tax Uncaps a Fight

(by Valerie Bauerlein and Betsy McKay, The Wall Street Journal, WSJ.com) – Makers and sellers of soda and other sweet drinks have intensified a fight against proposed taxes on their products, as a growing number of cities and states are weighing the measures to help fill depleted coffers.

A soft-drink bottler offered what it called a $10 million good-will-gesture donation for health and recreation programs in Philadelphia, as city officials there considered a proposal for an excise tax to help plug a budget hole and fight obesity. The tax, proposed by Philadelphia’s Democratic Mayor Michael Nutter, would amount to two cents an ounce on soda and other sweet drinks.

Industry officials are also considering trying to organize a referendum in Washington state to repeal a three-year excise tax on carbonated beverages of two cents on every 12 ounces.

The moves come as officials in at least 20 cities and states have proposed new taxes or the removal of tax exemptions on non-alcoholic beverages so far this year. The beverage industry has spent millions of dollars since 2009 on lobbying and advertising against proposed taxes, including a federal tax initially proposed as part of the health-care reform bill.

So far, few such taxes have actually been imposed. The final federal health overhaul didn’t include a soft-drink tax. And while several state and city legislators initially expressed enthusiasm for new soda taxes, only Washington state has approved a new excise tax on soda thus far, while Colorado removed a sales-tax exemption.

Several other states have existing small taxes on soft drinks, but those stirring controversy are the proposals for new, larger taxes.

Industry officials argue that taxes would penalize consumers at a time when people are already struggling and lead to lost jobs for bottlers and distributors.

“This is all about grabbing money to fill budget deficits and pay for more government,” said Kevin Keane, a spokesman for the American Beverage Association, the main trade organization representing Coca-Cola Co., PepsiCo Inc. and other beverage makers. “There’s really a grassroots disdain for more taxes, especially on grocery items.”

The ABA spent $18.9 million in 2009 on lobbying, compared with about $668,000 in 2008, with most of the money going toward ads against a federal soft-drink tax. The organization spent $5.4 million in the first quarter of 2010, up from $140,000 in the year-earlier period, with most of the money in the latest quarter spent on advertising changes that have been made in beverage selections at schools to reduce calories, the ABA said. The figures don’t include money spent by local coalitions and lobbyists to battle state and local taxes.

In Philadelphia, the donation offered by Canada Dry Delaware Valley Bottling Co., which included funds from other beverage companies, would have funneled $10 million into health and wellness programs in the city through the Pew Charitable Trusts.

Larry Ceisler, a representative of the Save Philly Jobs, a coalition of bottles, distributors and other interested parties, and a spokesman for Harold Honickman, the distributor’s chairman and a philanthropist, said the donation offer was a good-will gesture after the soda-tax debate “raised our antenna to the dual problems” of the revenue shortfall and childhood obesity. It was not meant as a payoff, he said. “We’re trying to be good, responsible corporate citizens here,” he said.

While the offer stood even after the Philadelphia City Council effectively killed the proposed tax Thursday, voting instead to plug the budget hole with a property-tax increase and a tax on tobacco products, the council has turned the money down for now.

“We’d love to have the $10 million but not now; because the [soda tax] was on the table, it wasn’t considered the thing to do at this point,” said council spokesman Tony Radwanski.

Still, some beverage-industry executives privately worry the donation could set a precedent, with other cities expecting donations, as beverage makers continue to combat tax proposals across the country.

In Washington state, the new soda tax is meant to help plug a budget hole of nearly $2.8 billion, said Viet Shelton, a spokesman for Democratic Gov. Christine Gregoire. New taxes were aimed at “what you consider discretionary purchases,” he said, adding, “There was a significant presence of lobbyists from the soft-drink industry during our last legislative session.”

The ABA’s Mr. Keane said his organization was “considering our options” in regard to a possible referendum in the state.

Washington, D.C.’s city council was weighing a penny-per-ounce tax on sweetened drinks, capped at 30 cents a bottle, but the initiative died Thursday amid industry lobbying and council members’ concerns about the impact on poor families.

A bottle tax proposed by Baltimore’s Democratic Mayor Stephanie Rawlings-Blake has stalled as city-council members look for alternative ways of plugging the budget, amid pressure from grocers, bottlers and other businesses.

New York’s Democratic Gov. David Paterson’s proposed penny-per-ounce soda tax hasn’t won wide legislative support and is expected to die.

Kelly Brownell, director of the Rudd Center for Food Policy and Obesity at Yale University, who helped raise the idea of a penny-per-ounce excise tax in an April 2009 paper in the New England Journal of Medicine, said he was “not a bit” discouraged that more soda taxes haven’t been passed.

“How could you be discouraged when major cities and states all over the country are considering the idea?” Dr. Brownell said. The potential revenue gains and public-health arguments will eventually persuade some cities or states eventually to pass hefty taxes, he predicted, “and then I think the floodgates will open.”

-Gary Fields contributed to this article.

Write to Valerie Bauerlein at valerie.bauerlein@wsj.com and Betsy McKay at betsy.mckay@wsj.com.

NOTE: This article was first published at wsj.com on May 23, 2010.

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