Sunday, April 25, 2010

Taking on Big Soda over Taxes: Lessons Learned from Fighting Big Alcohol

This article of mine was recently published on the Corporations and Health website.

Since I started working at Marin Institute, an alcohol industry watchdog group, in 2007 it’s become painfully clear that corporations have the same playbook. Whether it’s the food industry, tobacco, or alcohol, they all use the same talking points and lobbying strategies. While Big Tobacco may be most infamous for decades of hiding scientific evidence of harm and the deceptive marketing, all industries have similar tactics.

In my work at Marin Institute, raising alcohol taxes has been a primary focus of our policy agenda because we know that increasing prices is one of the most effective ways to prevent underage drinking and adult overconsumption. With soda taxes becoming an increasingly attractive policy option to help prevent diabetes and obesity, the soft drink industry is fighting back, and hard. While tobacco is often mentioned as the analogous issue, in fact, alcohol is more similar to soft drinks.

Besides the obvious (they are both beverages), alcohol and soft drinks each hold a special place in American culture. There’s nothing more American than relaxing with a Coke, or a Bud. Also, unlike smoking, which everyone (well, except the tobacco industry) can agree should simply be stopped, when it comes to beverages, the message is more about cutting down.

Here, I offer a few of the lessons that alcohol control advocates have learned from decades of fights with industry over raising taxes, fights that continue to this day.

Lesson One:
Don't let industry claim that soda doesn't cause obesity or that taxes won't work

This is a tried and true tactic: attack the science, discredit the scientists, and make unscientific predictions that are in direct conflict with the published science. As is the case with tobacco, the alcohol industry has abandoned its futile attempts at claiming there is no scientific connection between alcohol consumption and health problems. However, because the science is less far along in obesity, the soda industry attempts to refute what science there is on the connection between drinking soda and poor health. Still, this argumentation is easily countered by showing those studies that claim no connection between soft drinks and obesity tend to be funded industry, big surprise.

A related argument is that raising taxes will not result in the desired public health goal of lowered consumption, and thus fewer health problems. The alcohol industry does try to make this argument, claiming that people will continue to drink and of course, what we really need instead is better education and parental oversight. The soft drink industry loves to point out how there are “many causes” of obesity and that they should not be singled out, and that soda taxes won’t work due to this “complexity.”

Now it’s true that we do have less science when it comes to predicting behavior change from soda taxes than either tobacco or alcohol, both of which have been studied for decades by economists and other researchers. So it’s imperative that when we are making claims related to “elasticity” (the economic term for consumer response to price change) that we get it right.

We also have to be honest by saying that we may need more research to fully understand pricing effects. One thing we’ve learned from alcohol is that taxes can be a very blunt instrument in effecting price change because companies are very clever in how they absorb the added business expense. Companies can keep cheap products cheap while marking up more expensive products, or simply cut costs instead. Product pricing is extremely complex and cannot always be predicted accurately. One study suggests that minimum pricing on all alcohol may be a better policy than raising taxes, due to price manipulation by industry.

Minimum pricing is when the government sets a floor; for example, that retailers cannot sell below cost. Such a policy has a more direct impact on prices than taxes. Perhaps minimum pricing should be considered for soda.

Lesson Two:
Don't let industry claim that a penny per ounce tax will cause massive job loss

Job loss and adverse economic impacts are industry’s most effective talking points. It cannot be underestimated how powerful and persuasive this argument is with politicians, as it gives them a convenient excuse to curry favor with industry by voting against a tax increase. Already, lobbyists for Big Soda have descended on New York State to convince lawmakers there to vote against a tax, with unsubstantiated claims of massive job loss. A recent story in the New York Daily News estimated that the beverage industry spent $3 million on lobbying against the state soda tax proposal.

The alcohol industry has been extremely effective claiming job losses so it’s no surprise the soda industry is following this path. And of course, in these tough economic times, such arguments carry even more weight. “We are already struggling. Don’t kick us when we are down. This is the worst time to raise taxes,” we hear all the time. Of course, meanwhile, every state legislature is in the red, desperate for revenue, which is precisely why soda taxes are even being considered in so many states in the first place.

But there is no good time to raise taxes. If and when the economy improves, the soft drink industry won’t suddenly stop opposing taxes. Alcohol control advocates have countered industry’s job loss claims in a few ways. First, they argue that the tax increase being proposed is so small that the impact on business will be negligible. Of course, it will still be enough to see a public health impact, but it won’t put anyone out of business, even the small “mom and pop stores.” Secondly, there is no good science to back up industry’s wildly exaggerated claims of job losses. Unfortunately, we do not have any science on the public health side either to examine what any potential job loss might be based on, either from an alcohol or soda tax increase, and this is an area of research that is sorely needed. We do have decent studies on indoor smoking laws that showed bars did not go out of business, despite industry claims to the contrary during those battles.

Another response to the economic argument is that when people stop buying one type of product (whether tobacco or alcohol or soda) those consumer dollars do not disappear. Rather, people spend that money in other parts of the economy, so there is no net loss. Moreover, the money to be gained in tax revenue will be spent on programs that will create jobs. For example, in New York, the Healthcare Education Project is projecting that 29,000 healthcare jobs will be lost if the soda tax there does not pass. This dwarfs the beverage industry's job loss projections of 6,000 if the soda tax is passed.

Lesson Three:
Don't let industry claim they care about poor people and working families

The beer industry has been particularly shameless about arguing that beer taxes are regressive because they hurt poor Joe and Jane Six-pack. We make the obvious counter argument, that beer, like soda, is not a necessity of life. (Moreover, research shows that people with higher incomes actually consume more alcohol.) The soda industry, through its ad campaigns and front group, Americans Against Food Taxes, is promoting the imagery of family picnics, and claiming that average Americans would never be in favor of such policies. In alcohol, polling has proven very useful to demonstrate the overwhelming support for higher alcohol taxes, especially when the funds are applied to alcohol-related programs. Polling could also be useful in countering soda industry claims that all Americans think taxes are always bad. Positive polls also offer politicians cover.

Lesson Four:
Make sure to index all excise taxes to inflation (Industry hates this) 

One of the biggest challenges in the alcohol field is that excise taxes (based on volume sold) are not indexed to inflation. As a result, because most states have not raised their excise taxes in years, the real value of tax revenue has significantly declined. For example, in California, the real value of alcohol excise tax revenue, which was last raised in 1991, has declined 37 percent. (See Marin Institute’s maps that demonstrate the impact of neglected and outdated alcohol excise taxes in each state.) This amounts to a subsidy for industry, since product prices remain artificially low. Here, you have not only industry to battle, which hates indexing to inflation for obvious reasons, but also many lawmakers who do not believe in placing automatic increases on taxes. But without it, you will find yourself fighting the same battles year after year for increases. Note that because sales taxes are usually assessed as a percentage of price, sales taxes will go up as prices increase. This is one benefit to sales tax over excise tax.

Lesson Five:
If and when you start gaining success locally, do not allow industry to get preemption at the state or federal level (This is really important)

Most excise taxes on products such as tobacco and alcohol are assessed at both the federal and state level and for good reason, as both levels of government rely on the revenue generated by taxing these products. Some states also allow the local taxation of tobacco and alcohol, which is of critical importance, especially now when so many counties and cities are hurting for revenue. And of course, it’s at the community level that the adverse impact of harmful products is felt most severely. Unfortunately, the alcohol industry has successfully preempted localities from assessing taxes in most states. In other words, only states can levy alcohol taxes, not cities or counties. (There are some exceptions; for example, California allows local fees under limited circumstances.)
For soda taxes, it’s imperative that cities and counties retain the right to assess local taxes and fees as they see fit. Also, if there is ever to be a soda tax at the federal level, under no circumstance should such a law preempt state-level taxation. Doing so would be a public policy disaster and makes no sense from a states-rights or public health perspective.

Lesson Six:
Be Prepared for the Long Haul

Finally, do not underestimate how much industry will lobby to the death against taxes. This is unlike any other fight--school food, menu labeling, you name it--and the food industry cares more about taxes. Taxes go to the heart of the corporate business model: having complete control over pricing, which is critical to maintaining steady profits.

Also, unlike other issues for which there may be grounds for compromise (such as menu labeling), industry will not compromise on taxes. This issue is non-negotiable.

Instead, industry will kill bills, and when they can’t stop a bill, they will successfully water it down to a much lower, perhaps insignificant tax rate. (Then when you try to raise it next time, it will look like a huge, unreasonable increase, which will be used against you.) Big Soda, in cahoots with distributors, restaurants, and the retail sector, will out-spend and out-maneuver public health advocates for decades to come. Already the soft drink industry has increased its lobbying against soda taxes by 750 percent both in Congress and the states, which indicates how seriously they take this threat. They can spend millions of dollars fighting taxes and still get a good return on that investment due to the money they save in the long run.

And the fight will never be over, because even if you get a tax this year, it will probably be small, and you will have to fight to increase it next year, and the year after that. Public health advocates will have to decide if the enormous resources it will take to succeed are ultimately worth spending decades fighting on taxes, or if other policies, such as reducing corn subsidies, would be more effective. Either way, the lobbyists will remain employed.

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