Industry Lobbying Turns Soda Taxes From Fizzy to Flat

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When Washington State passed a tax on soda and other sugary beverages in April, it seemed like momentum was building nationally for a new kind of tax. Washington's law, which imposes a tax of 2 cents for every 12 ounces of soda, came on the heels of similar actions in Maine and Colorado.

Politically, the soda tax seemed to pack a perfect one-two punch. It raised revenue in a year when states like Washington were facing enormous budget deficits. And it offered a response to the growing problem of obesity, especially among children.

Now, the beverage industry has momentum flowing in the opposite direction. Its lobbyists quashed every other state effort to pass a soda tax this year, including bills in Mississippi, New Mexico, and just last week , New York State. And in Washington State on Friday (July 2), an industry-funded initiative to repeal the new soda tax appeared likely to be certified to go before voters on this November's ballot. Its sponsors turned in 395,000 signatures, much higher than the 240,000 required.

The American Beverage Association (ABA) is supporting the campaign for Initiative 1107 by funneling money to its Washington State branch, which relies on Pepsi and Coke's Northwest bottling warehouses for most of its revenue. ABA spent more than $1 million just gathering signatures to get the initiative on the ballot. Sandeep Kaushik, a spokesman for the coalition of children's health groups who advocated for the soda tax, expects the industry to pour as much as $10 million into the election.

The fight over soda taxes is far from over. But it demonstrates how far an industry will go to protect profit margins and avoid having its product lumped with alcohol, tobacco and others subject to so-called "sin taxes." In every state where a soda-tax plan has been proposed, it's been met with a heavily-funded campaign from the beverage lobby to oppose any type of increase. The tactics are unique to each state, but the message is usually the same: Don't lay the blame for obesity solely on soda.

That message already has worked in Maine. Two years ago, the Maine Legislature passed a soda tax of 42 cents per gallon of soda. The revenues were marked to go toward a state health care program. Last November, the soft-drink industry thwarted the effort by pumping $4 million into "Fed up with Taxes," a ballot initiative that successfully encouraged voters to reject the tax.

In Washington State, the debate began in February when Governor Chris Gregoire proposed a 5-cents per can tax on carbonated drinks, which was expected to raise $94 million, in a year when the state was facing a $2.8 billion budget gap. She also proposed repealing a tax exemption for soda syrup. But the plan stalled in the Legislature and soon was gone without a public hearing or vote from either chamber. At the time, State Representative Eileen Cody, who chairs the House health care committee, said that lawmakers were nervous about provoking exactly what's happening now: a strongly financed campaign against the tax.

During an April special session, Gregoire proposed the soda tax again. This time, she scaled it down to 2 cents for every 12 ounces of soda, and put a 2012 expiration date on it. With the budget situation still pressing, the plan received more support. State Representative Ross Hunter, the House finance committee chairman who had previously refused to schedule hearings on the soda-tax plan, says he voted for it because he didn't want to have to cut funding for college aid or health care instead.

The plan, however, included some wrinkles that have become crucial to the beverage industry's fight to overturn it. Besides soda, the tax applies to candy, as well as some locally processed foods such as canned chili. Kaushik, the soda-tax proponent, calls the provision regarding food processors a "technical fix" that affects very little of the food one might find at a grocery store. Nevertheless, the beverage industry's campaign for I-1107 includes the tagline, "Stop the tax hikes on food and beverages."

Kaushik sees this as misleading. But the beverage industry sees taxes as taxes. Robert Gara, a spokesman for "Yes on 1107," is counting partly on the sheer complexity of the new levies as motivation for voters to overturn them in November. An example: Butterfinger candy bars are taxed but Milky Way bars aren't. This is because Milky Ways contain flour — and flour is classified as food, which has been exempt from sales taxes since the 1970s.

A recent University of Washington poll found that the state's residents favor the taxes by a slim margin, leaving a lot of leeway for both sides to change those numbers.

"Yes on 1107" is gearing up plenty of reasons for voters to disapprove the levies. "This bill was adopted late one afternoon without any public hearing or public input," Gara says. "Those conversations were done behind closed doors." But perhaps his most convincing argument — one stressed in every state that defeated similar increases this year — will be the realities of the state's economic environment. "Fundamentally it's not a good idea to be raising taxes," Gara says. "It hurts an already poor economy."