Drinks firms hope to can tax proposals

Drinks firms hope to can tax proposals

The debate over a possible tax on sugar sweetened beverages has reared its head again this week after New York Governor David Paterson raised the proposal for the second time in 12 months. Michelle Russell examines the debate.

The issue, once thought to have been put to bed, has again started to fizz.

Many have voiced their disappointment at the proposal, being billed as a way to fight obesity and provide more funds for healthcare.

Justin Wilson, a senior research analyst at lobby group Center for Consumer Freedom, told the Daily Caller that the “sour proposal” was merely a “sin tax” on soft drinks that he believes could help “reduce waistlines while filling politicians’ pockets”.

“Since when is our government in the business of conducting tax experiments, especially when the experiment has been tried before and failed to produce anything more noteworthy than emptier pockets?” he said.

Outside of New York, US senate members have floated a soft drinks tax as a way of helping to fund healthcare reform. President Obama has shown his support for the proposal, although it has failed to gather momentum and major soft drinks companies such as The Coca-Cola Co and PepsiCo have naturally labelled the idea “outrageous”.

Muhtar Kent, CEO of Coca-Cola Co, told the New York Times in September: “I have never seen it work where a government tells people what to eat and what to drink. If it worked, the Soviet Union would still be around.”

The newly proposed tax in New York would add US$1.44 to the price of a typical 12-pack of non-diet Coke or Pepsi cans, nearly ten times the state excise tax on a 12-pack of beer.

US campaign group New Yorkers Against Unfair Taxes, whose members include New York residents and business groups, said earlier this week: “New Yorkers are struggling to make ends meet in this economy and we shouldn't bear the burden of fixing the Governor's budget problems. Another tax will be detrimental to hardworking New York businesses and residents.”

A poll by Quinnipiac University found that 60% of New Yorkers opposed Paterson's original soft drinks tax plan. In addition, a poll of 1,000 adults by the Opinion Research Corporation (ORC) in September found that two thirds of Americans were opposed to taxing soda in general.

However, many doctors, scientists and policy makers believe a tax on soft drinks could be a powerful weapon in reducing obesity, in the same way cigarette taxes have helped curb smoking.

Writing in the New England Journal of Medicine last September, New York City health commissioner Dr Thomas Farley and academics from the Harvard School of Public Health and Yale University proposed an excise tax of 1% per fluid ounce for any beverages with added caloric sweeteners.

Their study found that, although 33 US states currently tax soft drinks and other sugary beverages that lead to obesity, taxes have been too low to keep Americans off the goods.

“Because of the contribution of the consumption of sugar-sweetened beverages to obesity, as well as the health consequences that are independent of weight, the consumption of sugar-sweetened beverages generates excess health care costs,” the report said. Obesity tax revenues should be earmarked for health care programmes, it added.

However, even as a supporter of the tax, Michael Jacobson, executive director of the Center for Science in the Public Interest, said it was not clear if it would have a direct effect on the waistlines of Americans.

“I think we should be satisfied that soda taxes would be having a modest effect on consumption but would generate billions of dollars that could be used to mount public health campaigns,” he told the New York Times.

He added that if the tax was levied on the manufacturers of sugary beverages, they might be able to spread the cost among many of their products, not just drinks, easing the impact for consumers.

Stifel Nicolaus analyst Mark Swartzberg estimated that last year's soft drinks tax proposal in New York would only have led to a 0.1% drop in soft drink volume sales.

It is the legacy of a New York tax that the industry fears most, with the possibility that other states will follow suit and that the practice will become an accepted norm. Alcoholic drinks makers are already further along that trail.

Governor Paterson's proposal also serves as a reminder of the regulatory minefield currently confronting the soft drinks industry.