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US: Alcohol tax hike threat recedes

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The threat of a federal tax hike on alcohol and sugary soft drinks to help pay for healthcare reform in the US appears to have receded, following comments from leading Senators in the debate.

Proposals to raise taxes on alcoholic and soft drinks "are on life support", Senator Max Baucus, chairman of the Senate Finance Committee, said in an interview with CNBC at the end of last week.

Another committee member, Senator Charles Grassley, said on the same programme that the taxes were a "nuisance".

Their comments come after the Senate Finance Committee, which is tasked with devising a way to fund healthcare reform in the US, suggested federal tax hikes on alcohol and sugar-laden soft drinks as a means of raising extra cash.

Federal tax on alcohol has not risen in the US since 1991.

Among the proposed tax increases, the Senate Committee proposed raising tax on spirits by 20%.

The Senators' comments last week have dampened the prospect of the plans becoming a reality, however.

Analyst group Sanford Bernstein said today (11 June): "We stated that we thought this was unlikely to be implemented because of the de minimis net contribution in the context of the likely $1 trillion bill for health care reform, combined with the probable political backlash against regressive taxation on 'Joe Six-Pack'."  

Bernstein previously called the proposals "possibly the single biggest threat to the European beverage stocks".

Another analyst group, Stifel Nicolaus, also noted that the Senators' comments appear to have put the brakes on tax increases.

Stifel said at the end of May that a tax on soft drinks of $0.03 per 12-oz serving had been mentioned by the Congressional Budget Office.

Should that figure stand, Stifel estimated that US soft drinks earnings for Coca-Cola Co, PepsiCo and Dr Pepper Snapple could fall by between 3% and 6.5%.

 


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