Some States Like the Sweet Taste of Soda and Candy taxes

Riders of the New York City subway got an eyeful — and probably a little indigestion — when they saw billboard ads last fall that showed a sugary drink being poured out of a soda bottle that turned into globs of human fat. “Are you pouring on the pounds?” the headline asked. “Don’t drink yourself fat.”

The ad was paid for by the New York City Health Department, but it spoke to an issue that New York Governor David Paterson has been pushing for two years. Paterson wants Albany to approve a penny-per-ounce tax on sugary drinks, above and beyond the state’s normal 4 percent sales tax rate.

The new tax would pour billion into state coffers at a time when New York’s battered budget could use the revenue. But just as important, Paterson argues, the tax would discourage people from drinking the sodas, juices and energy drinks that many experts believe contribute to health problems associated with being overweight.

Paterson’s soda-tax plan is running into fierce opposition, however. Anti-tax activists call it a money grab by a government that they see as the one with the weight problem. Libertarians argue that Paterson’s reasoning is akin to Big Brother trying to dictate what they can drink. And the soda industry argues the proposed tax unfairly targets just one of the many foods or drinks that, if consumed in excess, can make people fat.

“We understand that governments are facing tough budget challenges,” argues Susan K. Neely, president and CEO of the American Beverage Association. “But singling out one item for taxation completely misses the mark in having an effect on the national challenge of obesity.”

The soda tax idea got a jolt last month when New York City Mayor Michael Bloomberg publicly endorsed it. Although the tax still faces a tough fight in the Legislature, Governor Paterson is not giving up. “Someone has got to contribute to the .6 billion the state spends every year to treat diseases from obesity,” he told reporters last month.

Paterson’s push on soda taxes is part of a broadening movement among states to treat unhealthy foods in much the same manner as tobacco and liquor — as vices to be discouraged through the tax code. Another big area of activity revolves around candy.

Illinois recently joined Florida and New Jersey on the list of states that have extended their sales taxes to cover Hershey’s bars, Snickers bars and other candy. In Colorado, the state’s 2.9 percent sales tax will begin to apply to candy and soda sold from soft machines beginning next month. And the Democratic governors of Massachusetts and Washington State both have proposed extending their states’ sales taxes to both candy and sugary drinks.

The proposals take a three-pronged approach, says Sujit M. CanagaRetna, a tax and budget expert at the Council of State Governments . They raise revenue, reduce health care costs and bring about healthier lifestyles. “States are in dire need of revenue,” he says, and the additional dollars can help with what he calls astronomical health care costs.

Obesity currently afflicts one-third of all adult Americans and rings up some billion per year in health care costs , according to the federal Centers for Disease Control and Prevention. Of that cost, nearly billion is picked up by Medicaid, the state-federal health insurance program for the poor and disabled.

At one point, Congress considered, but dropped, a proposal to tax soda to help pay for the recently approved health care overhaul. The idea, President Obama said, was worth exploring. “There’s no doubt that our kids drink way too much soda,” he told Men’s Health magazine . “Obviously there is resistance on Capitol Hill to those kinds of sin taxes,” he said.  

Resistance is strong in the states, too. But with state budgets looking desperate in almost every state, the pull of a new revenue source also is strong.

Colorado figures to bring in .6 million a year from taxing soda and candy sales. The plan to do the same in Massachusetts, if passed, would raise million.

The Center for Science in the Public Interest, an advocacy group, figures that states as a whole could generate billion per year by levying a tax of 7 cents per 12-ounce can of soda. In fact, the group has devised a Liquid Candy Calculator to help states calculate the revenue they could raise from sales or excise taxes on sugar-sweetened beverages.

Analysts at Yale University have developed their own soda tax calculator that shows the expected revenue a state could get by taxing sugary drinks at a rate of up to 2 cents an ounce. Their research suggests that a 10-percent increase in soda price could lead to an 8-to-10 percent drop in soda consumption.

The research is conflicting, however, especially when it comes to the efficacy of soda taxes. A study this month from RAND Corp. concluded that small sales taxes on soft drinks are insufficient to significantly reduce consumption of soda or curb obesity among children.”If the goal is to noticeably reduce soda consumption among children, then it would have to be a very substantial tax” says Roland Sturm, the study’s lead author and a senior economist at RAND, a nonprofit research organization.

Others who have looked at the latest wave of sin taxes raise different concerns. Experts at the Tax Foundation , a group that advocates for lower tax rates and a simpler tax system, argue that it’s better to tax all food at the same rate, rather than favoring one over the other. “What is a food versus what is a snack leads you down to a rabbit’s hole of definitions,” says Bill Ahern, a spokesman for the nonpartisan group in Washington, D.C. For instance, he says, currently in New York, Tang is not taxed, but Gatorade and Hi-C are; Marshmallow fluff is not taxed, but candied apples are; sugar and nuts are not taxed, but sugar-coated nuts are, Ahern says. “You get to a point of absurdity.”