Local push to tax soda adds fizz to U.S. debate

CHICAGO (Reuters) - A campaign by state and local lawmakers to tax sugary beverages to cover obesity-related health costs could revive a national debate successfully snuffed last year by the $110 billion soft drink industry.

In California and New York -- states with big budget deficits and experience taking public health issues into their own hands -- legislators are backing efforts to tax sugary drinks, now a focus of the national debate on obesity.

They are not alone. Roughly a dozen more states, including Kansas and Colorado, and cities like Philadelphia, are gearing up for battle or enacting new taxes on sweetened beverages.

Kelly Browne, director of Yale University's Rudd Center for Food Policy and Obesity, long has advocated a penny-per-ounce tax to cut soft drink consumption and pay for public health programs, and says the idea is gaining momentum.

"We're getting contacted almost every day by some new city, state or county that wants to do a soda tax," he said. "I would be shocked if this doesn't reappear in the federal discussion."

Dr Pepper Snapple Group Inc (DPS.N) Chief Executive Larry Young, who is also chairman of the American Beverage Association, said "never say never" about a proposal getting a second life in Washington, D.C.

Young, speaking at the Reuters Food and Agriculture Summit in Chicago, said the ABA would fund federal lobbying efforts this year at a level similar to last year, when spending by the group and market leaders rose more than 750 percent in response to the threat of a national soda tax.

"We really don't need people telling us what we eat and drink," said Young, adding that the tax is not meant to battle obesity. "It's for the budget deficits."

THIS GENERATION'S TOBACCO?

Health experts say soda and other sweetened drinks are a key source of excess calories in the U.S. diet, helping to fuel the obesity epidemic that has left two-thirds of Americans, including one in three children, overweight or obese.

Proponents of the tax see sugary drinks as this generation's tobacco -- which is now heavily regulated after years of battles.

The soda industry has flooded the airwaves with ads from front groups like Americans Against Food Taxes. It says it is being unfairly targeted and that a soda tax would burden consumers.

"Let's put warning labels on sofas, because that's where kids are sitting instead of (being) outside playing," Young said, arguing that children need better education about balancing calorie intake and exercise.

And if spending on lobbying is any gauge of the industry's concern -- soda makers are on red alert.

According to the Center for Responsive Politics' OpenSecrets.org, the ABA, Coca-Cola Co (KO.N), Coca-Cola Enterprises Inc (CCE.N) and PepsiCo Inc (PEP.N) spent $40.4 million on lobbying last year. The ABA's contribution was $18.9 million.

In 2008 -- before well-publicized calls for federal soda taxes and the inauguration of President Barack Obama, who favors such a levy -- the ABA kicked in just $688,000 of the $4.7 million those four entities spent on lobbying.

"Since companies are not required to disclose money spent on advertising and advocacy work, these numbers may be the tip of the iceberg," said Joe Eaton, staff writer at the Center for Public Integrity.

"The industry is telling us with their lobbying money that yes, it can happen and that it would have a beneficial impact," said Yale's Browne.

Philip Gorham, a beverage analyst at Morningstar, said he thinks the taxes are inevitable given budget shortfalls on the federal, state and local levels. Still, he expects the industry to mount a fierce defense.

"It's worth the fight to keep consumers on the high-margin products for as much time as they can," Gorham said, adding that a soda tax will probably return to the national agenda "sooner rather than later" since "the need to close those budget gaps is immediate."

DIFFERENT KETTLE OF FISH

California's proposed legislation, which would slap a 1-cent levy on every teaspoon of added sugar or other caloric sweeteners in commercial beverages, could raise $1.5 billion a year, according to initial projections.

New York Gov. David Paterson and New York City Mayor Michael Bloomberg have urged state lawmakers to levy a 1-cent-per-ounce tax on sugary drinks, even after a proposal last year fizzled.

"Someone has got to contribute to the $7.6 billion the state spends every year to treat diseases from obesity," Paterson said of the tax he envisions, which is estimated to raise $1.2 billion annually.

John Sicher, who publishes Beverage Digest and follows the industry closely, said some of the proposals "could significantly raise prices and cause volume declines".

He said a 1-cent-per-ounce tax would raise the price of a 2-liter bottle of soda by 50 percent and a 12-pack of cans by 45 percent.

Browne says a national tax like the one he proposed could cut the consumption of sugar-sweetened drinks by the average American from 50 gallons annually to 38.5 gallons.

Such a tax is also expected to reduce healthcare costs by about $50 billion over 10 years and raise $150 billion in revenue over the same period, he said.

"We tax tobacco and we tax alcohol. We decided as a society that those things are causing enough problems that a tax was justified," Browne said. "Are we at that point with sugared beverages?"

(Reporting by Lisa Baertlein and Martinne Geller, editing by Matthew Lewis)