From Philly to Cook County, an unbroken string of soda taxes
by Don Sapatkin, Posted: November 12, 2016
Chicago's Cook County approved a beverage tax on Thursday, the fifth defeat in three days for an industry that recorded its first big loss – in Philadelphia earlier this year – after scores of victories around the country.
Passage of the penny-per-ounce tax in the nation's second-most-populous county adds further pressure to the beleagured beverage industry. Politicians in other communities who have been intrigued by the potential benefits – for public health and government coffers – of a new sin tax but have feared the wrath of consumers and the clout of the beverage industry now have two roadmaps to follow:
Lopsided election night tax approvals in Boulder, Colo., San Francisco, and two other Bay Area cities, were by public referendums that proponents waged largely on the basis of public health. The taxes, like the first big beverage levy passed two years ago in nearby Berkeley, will apply to drinks with added sugar.
Cook County, Ill., like Philadelphia (but with triple the population), will include beverages with artificial sweeteners. And the president of the county commissioners, like Mayor Kenney, emphasized revenue: The county faced a large budget gap and potential layoffs. Kenney wanted to expand pre-kindergarten and improve recreation centers.
A hallmark of all the campaigns was big spending by both sides, although the industry dominated. The $50 million worth of lobbying leading up to this week's California referendums – not counting the final push – reportedly totaled more than the state's Senate race and statewide measures on gun control and marijuana legalization combined.
Figures were not yet available for Cook County but are expected to be high. The industry laid out more than $10.6 million in Philadelphia, most of it from the American Beverage Association; pro-tax forces spent about $2.5 million. Former New York Mayor Michael Bloomberg and Texas billionaires John and Laura Arnold have led most of the spending in favor of the taxes, with a Bloomberg adviser saying earlier this week that $1 million would go into supporting the Cook County effort.
That tax, like most of the others, will be 1 cent per ounce, adding 96 cents to the price of a 16 ounce six-pack. Philadelphia's excise tax, levied on distributors (Cook County's will be a sales tax collected at the register) will add 1.5 cents if it is fully passed on. Boulder's will be two cents an ounce.
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The industry and other opponents have argued that beverage taxes unfairly target one food category, have unproven benefits, and are harmful to low-income consumers, who can least afford to pay the higher price. Proponents point to the toll of sugar-related health conditions, and make the opposite argument on affordability – that impoverished and African American residents, who consume more sugary beverages than affluent people and also have higher rates of obesity and diabetes, will reap the greatest health benefits.
Dan Newman, a consultant who was involved with the Bay Area initiatives, said industry spending to turn public opinion against the taxes was beyond anything he had seen in hundreds of campaigns over the years. He told reporters during a Friday conference call organized by the Bloomberg organization, that the aggressive effort had backfired, causing "irreversible brand damage."
In a statement about the week's results from the American Beverage Association, the hard edge of the campaign was gone. The industry is providing new beverage options, information and encouragement to help people cut back on calories and sugar, spokeswoman Lauren Kane said in an emailed statement.
"While we may disagree with some on discriminatory taxes, our work with public health and civic groups to actually reduce calories and sugar consumption is a stronger way forward to bring about lasting change. We will remain engaged in public health issues because we, too, want a healthy, America," she said.
Mid-afternoon Friday, shares of beverage companies were down -- Pepsico by 5.22 percent, Coca-Cola by 4.27 percent -- since trading closed on election night, but the declines were similar to the Standard & Poor's Consumer Staples Sector Index, which declined 4.23 percent. The S&P 500 was up 1.06 percent.
Industry profits have been increasingly squeezed in recent years as long-term growth slowed and then reversed. After Cook County's commissioners voted Thursday afternoon, the Illinois Retail Merchants Association suggested that it might sue to prevent the tax from taking effect in July. The American Beverage Association has already filed a lawsuit in Philadelphia Common Pleas Court to stop the tax before its scheduled Jan. 1 start date.
The notion of taxing soda to reduce consumption and reverse the nation's obesity epidemic was first proposed in medical journals and picked up steam over the past several years. Mayor Michael Nutter was among the dozens of public officials who took up the cause and lost (in his case, twice). But the fights, along with public health campaigns about the dangers of obesity, influenced public opinion, and soft drink sales have sharply declined in recent years.
Meanwhile, scientific evidence that liquid calories are metabolized differently than sugar in solid snacks, started to build. But the case for taxation still depended on a series of assumptions and models – that raising the price of sugar-sweetened beverages would reduce purchases rather than sending shoppers over the city line for their soda-shopping; that consumers would turn to water or diet soft drinks, since the body's need for fluids remains constant; that the lost calories would not be replaced with sugar in other forms; and, in the biggest leap of faith, that all of this would in fact improve people's health.
The effects of real-world public health interventions are hard to predict based on laboratory experiments, and it may take years of experience to determine whether the projections worked from beginning to end. But recent research findings from the first soda taxes have suggested an effect.
The World Health Organization concluded last month that there was enough evidence to support taxes on sugar-sweetened beverages to lower consumption and reduce obesity, type 2 diabetes and tooth decay. A tax levied on soft drinks in Mexico has reduced purchases, leading to independent projections published last week that nearly 19,000 lives will be saved over 10 years. Another study found that residents of two low-income neighborhoods in Berkeley, the only city in the United States that has already implemented a tax, has cut consumption by more than 20 percent.
All the data and modeling has examined the impact of taxes on beverages with added sugar. Philadelphia City Council decided to include artificially sweetened beverages in a last-minute compromise, and the strategy was picked up by Cook County.
During Friday's call with reporters, Howard Wolfson, a senior adviser to Bloomberg, said his organization was focusing its anti-obesity efforts on sugar-sweetened beverages but was "agnostic about diet beverages. We have no objection," he said, to including them in a tax.
Taxing artificially-sweetened beverages has never been recommended by recommended by public health researchers, and no one has studied it.