President Obama is being urged by health-care activists to propose a national tax on soft drinks, both to slim down Americans — especially children — and to raise money for improvements to the national health-care system. Even though Obama hasn't committed himself, bottlers are buying ads opposing a soft-drink tax.
In making a decision, Obama may look to Arkansas for guidance (though he probably won't get much). Arkansas's had a special state tax on soft drinks since 1992. (Soft drinks also are subject to the state sales tax on food. That tax has been reduced recently, and legislators and the governor say they intend to abolish it eventually.) Sources differ on how many states still have special soft-drink taxes., but it's known that a number of states have repealed them in the last 20 years or so. North Carolina is one of those. In 1992, Arkansas modeled its soft-drink tax after the one North Carolina had at the time.
Robert Bushmiaer, assistant administrator of the Miscellaneous Tax Section of the Arkansas Department of Finance and Administration said that he knew of two more states with soft-drink taxes — Virginia and West Virginia — and that there might be others. On the other hand, the Center for Science in the Public Interest, which wants a national soft-drink tax, says that “At least 25 states and the city of Chicago have small, special taxes on soft drinks … ” On the third hand, a soft-drink tax opponent wrote recently in Business Week magazine that state soft-drink taxes had been abolished everywhere except Arkansas and West Virginia.
Nonprofit groups such as the Center for Science in the Public Interest believe that a soft-drink tax, if large enough, would reduce consumption of sugary soft drinks and that this would result in less obesity and better health generally. The Rudd Center for Food Policy and Obesity at Yale University says “Poor nutrition affects the health of everyone, overweight or not.” Reduced consumption of sugar would improve dental health too, proponents say.
But CSPI concedes that the record of state soft-drink taxes does not provide support for the theory that taxation would reduce consumption. “Unfortunately, existing state taxes are too small to significantly reduce consumption and almost none of the revenues are earmarked for health promotion,” it says. The Arkansas tax is the equivalent of two cents per 12 ounces. The revenue is earmarked for Medicaid.
No record could be found of any study devoted exclusively to the Arkansas tax's effect on consumption. Tax officials say the soft-drink tax has been a strong and steady source of revenue, producing $47.6 million in the fiscal year that ended June 30. If there's been any significant reduction in the consumption of soft drinks, it's most likely due to the increased popularity of bottled water. Bottled water accounted for a tiny percentage of beverage sales in 1992.
The Arkansas tax was enacted at a special legislative session in December 1992, after President-elect Bill Clinton had resigned the governorship and been succeeded by Jim Guy Tucker. Medicaid was facing a financial crisis, as it frequently does. Soft-drink bottlers fought the tax fiercely. Besides the usual arguments that are made against new and increased taxes, opponents of the soft-drink tax argued that it was regressive, that it would fall most heavily on poor people. Some legislative supporters of the tax turned that argument around, saying that another “poor man's beverage” — beer — was already taxed and its competitors should be too. But mainly it was the needs of Medicaid, the program for low-income ill and elderly, that carried the day. Supporters of the tax said that without new revenue, health services such as nursing home care, prescription drugs and home health care would be in danger. People involved in the fight over the tax remember no discussion of the idea that the tax might improve Arkansans' health by reducing the consumption of soft drinks.
Bottlers obtained the necessary signatures to refer the tax to a vote of the people, and waged an expensive advertising campaign. Supporters spent comparatively little money, but ran an intensive, well-organized grassroots campaign. Most nursing-home residents are on Medicaid, and all over the state, the families of these residents were told that the local nursing home would close if the soft-drink tax were abolished. In other words, Mama would be coming home. In November 1994, Arkansans voted for the tax, 366,897 (55 percent) to 297,434. There's been no organized campaign against the tax since, although bottlers have succeeded in repealing soft-drink taxes in other state legislatures. In retrospect, the bottlers' decision to refer the Arkansas tax to a popular vote looks like a great mistake. To repeal the tax now would require legislators to flout the will of the people.