A Turning Point For Soda Taxes? In Illinois, Big Soda May Not Win Battle Against Levies On Sugary Drinks

The idea that sugar should be taxed is at least as old as America. "Sugar, rum, and tobacco are commodities which are nowhere necessaries of life” and thus were “extremely proper subjects of taxation," Scottish economist Adam Smith wrote in The Wealth of Nations, published in 1776. More than 200 years later, a tax on sugar is at the heart of a war between public health advocates and the beverage industry that has played out in cities across the country.

To date, most proposed taxes on soda, sweetened juices and other sugar-added beverages in the U.S. have been rejected after coming under fire from the deep-pocketed beverage industry. But that dynamic seems to be changing, as more public health advocates and elected officials embrace taxing soda as an important tactic in combating America’s obesity problem. The battle against Big Soda has recently turned to Illinois, which may soon see soda taxes passed in both the statehouse and in Chicago’s City Council. If those proposals become law, they could mark a turning point in efforts across the nation to curb the consumption of sugar-laden drinks and take on America's expanding waistline.

“They’re going to fight to the bitter end,” Alderman ­­­George Cardenas of Chicago’s 12th Ward, who proposed Chicago’s most recent soda tax as well as a previous, unsuccessful version in 2012, said of the beverage industry. “We have to put our best argument forward that taxing soda saves lives.”

Cardenas has estimated that his proposal would rake in $134 million a year in revenue that would fund public health initiatives. The tax itself would be levied at a rate of one cent per ounce on drinks with more than 5 grams of “caloric sweetener,” or any type of sugar that adds calories, per 12 fluid ounces. A 12-ounce can of Coke has 39 grams of sugar, or more than 9 teaspoons of sugar.

State legislators in Illinois have proposed a similar but separate state-wide tax, one that has its supporters optimistic. “We still think it’s got a very good chance this year,” Elissa Bassler, CEO of the Illinois Public Health Institute, a non-profit based in Chicago, said of the bill, called the Healthy Eating Active Living, or HEAL, Act. An ongoing budget impasse in Illinois’ Legislature could actually improve the odds of a soda tax being passed because lawmakers are looking for new sources of tax revenue, Bassler said.

The proposals draw primarily on two wells of inspiration: tobacco taxes in the U.S., and soda taxes in Mexico, where a nationwide tax on sugar drinks of roughly 10 percent went into effect in January 2014. Advocates of soda taxes view levies on tobacco as a rousing success story that could pave the way for a slimmed-down and healthier nation.

“It reduced consumption considerably,” Roberta Friedman, director of public policy at the Rudd Center for Food Policy and Obesity at the University of Connecticut, in Hartford, said of tobacco taxes. “It worked beautifully. It’s one of the major public health victories that we’ve had in the United States.”

Why A Soda Tax Matters

Solid scientific evidence points to sugar—sugary drinks chief among them—as a key culprit not just in expanding waistlines but also in rising rates of diabetes and other diseases. In 2010, nearly half of all the added sugar Americans consumed came from sugary drinks like soda, sweetened fruit juice, sports drinks, energy drinks and iced teas. One decades-long study has found that drinking sugar-added drinks can change genes in a way that increases a person’s risk of obesity.

Since the 1970s, Americans have more than doubled their intake of soda and sugary drinks, to the detriment of medical spending. In 2012, the direct and indirect costs of diabetes in the U.S. added up to $245 billion. Costs of medical care related to obesity were estimated at $147 billion in 2008, according to the Centers of Disease Control and Prevention.

In Illinois, 29.4 percent of adults are obese, while 35.3 percent are overweight, according to the CDC. Statewide, 22 percent of adolescents drink soda on a daily basis.

A tax of one penny for every ounce of a soda might seem inconsequential in the vast puzzle of how to contain America’s obesity crisis. But economists have calculated the impact of taxing sugary drinks and predicted that it can decrease consumption considerably, with tangible effects on human health. A 20 percent increase in the price of such drinks could, on average, reduce intake by 37 calories per day, which would add up to 3.8 pounds per year for an adult. Rates of adult obesity could drop from 33.4 to 30.4 percent with such a price increase, and the weight loss would be even greater for children, according to a 2010 study published by the Economic Research Service of the U.S. Department of Agriculture.

Illinois stands to benefit even more from such a tax, one county's research has predicted. If a one-cent-per-ounce tax were imposed on sugary beverages, the number of obese youth would drop by 9.3 percent and adults by 5.2 percent, one study, published in 2011 by Illinois’ Cook County Department of Public Health, found. Overall, 185,127 fewer Illinoisans would be obese, and the state would save $20.7 million in medical costs related to diabetes and $150.8 million in spending on health issues stemming from obesity.

Cardenas said hearings for the tax proposal were slated for mid-September, and Chicago’s City Council could decide on it as early as the end of the month. If passed, it would take effect at the beginning of 2016.

Illinois' statewide HEAL Act would impose the same penny-per-ounce tax on sugary drinks, with the anticipated $600 million in annual revenues funding Medicaid expansion and community wellness initiatives. It was introduced last year merely to rev discussion on the topic, Bassler said. It was reintroduced in January, but because no budget has been worked out, it still awaits decision in the General Assembly.

How To Tax Soda

Technically, 34 states and Washington, D.C. currently have taxes on soda ranging from under 2 to 7 percent. But these are sales taxes, which are markedly different from the excise taxes proposed in Chicago and Illinois and that have been imposed in Mexico and Berkeley, California. Sales taxes don’t appear on an item’s price tag – the tax is added at the cash register. “You might or might not know that the beverage you bought was taxed,” Friedman said.

Excise taxes, on the other hand, are imposed on beverage manufacturers, with the idea that they will pass the extra cost to retailers, who then transmit it to consumers. Theoretically, an excise tax raises the actual sticker price of a bottle of sweetened iced tea or fizzy soda enough to make customers think twice before buying, though whether this all works as planned is still up for debate.

In Berkeley, for instance, two economists have found that less than half of the penny-per-ounce tax was passed to consumers, possibly because distributors and retailers were absorbing the added cost. In Mexico, however, soda prices have risen by even more than the amount of the tax itself. The tax of one peso, or roughly seven cents, per liter, amounted to about 10 percent, but researchers have found that the actual price of soda actually rose by about 12 percent.

Although taxes on soda in theory decrease consumption, the real impacts of the idea are relatively untested. For instance, how much of the costs are actually passed to customers remains unclear, Claire Wang, an associate professor at the Mailman School of Public Health at Columbia University in New York who has researched the impacts of excise taxes on soda, said. But the taxes in Berkeley and Mexico will help provide answers to those questions. “We’re going to see a lot more data coming out of these two places,” Wang said.

Whether taxes on sodas and sugary drinks can actually curb obesity and improve public health has yet to be proven true, in part because so few of these taxes actually exist, and the ones that do have been in place a relatively short length of time. One study published in 2011 suggested that although soda taxes might help curb soft drink intake for individuals, on a broader scale, they "may not have a substantial effect on population weight."

A key element of excise taxes on sugary drinks is also that revenue tends to be dedicated to health-related initiatives, such as education on nutrition and exercise, or community exercise spaces. Public health advocates have grown to embrace this two-pronged approach of excise taxes on soda: Jack up prices to drive people away from sugary drinks and toward lower-calorie alternatives, and launch educational initiatives or develop infrastructure to improve a community’s health with the funds raised via those taxes.

“At the end of the day, we want to fund wellness programs and anti-diabetes and anti-obesity programs. That’s the whole game here. Not just taxes,” Cardenas, the Chicago alderman, said.

In the past seven years, 23 jurisdictions in the United States have weighed initiatives, including excise taxes, to curb sugary-drink consumption, according to the Center for Science in the Public Interest, a consumer advocacy organization based in Washington, D.C.

The Soda Industry Pushes Back

The companies that manufacture sugar-laden drinks have insisted that sugar and soda have been wrongly vilified as the culprit in America's obesity crisis. Coca Cola has gone so far as to fund scientific research that draws such conclusions, instead promoting the idea that Americans’ lack of exercise, not their poor diet, is responsible for such obese or overweight children and adults, a recent exposé by the New York Times laid out.

Soda companies have spent more than $106 million since 2009 on lobbying and advertisements against anti-sugary drink initiatives, a recent analysis of lobbying expensive reports and ballot initiative disclosures by the Center for Science in the Public Interest showed.

When a soda tax was proposed in 2014 in San Francisco, soda companies spent more than $9 million to defeat it, compared to the $255,000 advocates shelled out to promote it. Advocates of a tax in Vermont have pushed for a soda tax since 2010, but Big Soda has directed more than $1.8 million against the effort in the last five years, so far successfully pushing back against it. In Berkeley, the industry poured $2.4 million into fighting an excise tax proposed there—and lost, despite having vastly outspent the tax's supporters, who put $900,000 toward the cause.

In Illinois, groups like the Illinois Coalition Against Beverage Taxes, whose website domain is registered to the American Beverage Association, the industry’s primary lobby, have countered the tax by arguing it will kill jobs and hurt families. The leader of another industry group, the Illinois Retail Merchants association, a non-profit that has allied itself previously with the American Beverage Association, penned an opinion piece in the Chicago Sun-Times Tuesday calling the proposed soda tax “ burdensome” and a policy that “would strike a huge blow to employment and local businesses in an already volatile job market.”

Asked about the industry's prospects of defeating the Illinois and Chicago soda tax proposals, Jim Soreng, executive director of the Illinois Beverage Association, which represents bottlers, distributors and employees of the soft drink industry in the state, said by email that polls had showed “Americans oppose taxes on beverages by large margins.”

The beverage industry is already struggling to shore up a weakening soda market, with the steady decline of soft drink sales over the last decade. Its war against soda taxes may be an effort to counter that, but as cities or states continue to propose soda taxes, the beverage industry may find itself stretched thinner and thinner.

“It’s easy if you’re just playing defense in one jurisdiction,” Jim O’Hara, the director of health promotion at the Center for Science in the Public Interest, and co-author of the center’s recent report on the beverage industry’s spending, said. As more communities push for soda taxes, “they are having to play defense on multiple fronts,” he said of the beverage industry. “I think it’s going to be harder for them to succeed.”