Soda Tax Myths: The Arkansas Argument

by Dana Woldow on January 21, 2014

California state Senator Bill Monning (D-Carmel) is once again trying to pass statewide legislation to add a penny per ounce tax on sugary drinks, to fund statewide childhood obesity prevention activities and programs. The media’s response to Monning’s proposed measure, no doubt fueled by beverage industry propaganda, provides a preview of what we can expect to see in February when San Francisco Supervisors introduce legislation to levy a 2 cents per ounce tax on distributors of soda and other sugary soft drinks.

The Senate bill, SB622, has been sitting in the Committee on Appropriations Suspense File, but Monning has promised a “full court press” to move the bill to the Senate floor this month, according to the Santa Cruz Sentinel. The Senate Appropriations Committee held back SB622 during the last legislative year, due to the start-up costs of administering a new tax.

Meanwhile, the beverage industry has already come out swinging. One of their favorite talking points against soda taxes is the Arkansas Argument. As elucidated in a recent editorial in the San Jose Mercury News, it goes like this:

“Arkansas instituted a soda tax in 1992, as Gov. Bill Clinton’s term was ending, for the same reasons Monning and some other Bay Area lawmakers have supported one. But 20 years later, the state’s adult obesity rate had risen from 17 percent to 34.5 percent.”

The editorial concludes by urging “If California goes down the path of a sin tax on fattening foods and drinks, it should develop a thoughtful and comprehensive law, not follow in the pudgy footsteps of Arkansas.”

See what the author did there? He made it all about obesity, as if fighting obesity was what Arkansas had in mind when it passed that soda tax 22 years ago. But that’s not what Arkansas had in mind – at all.

In fact, the Arkansas tax on soft drinks’ sole purpose was to raise money to help the cash-strapped state pay its share of Medicaid. Jim Guy Tucker was Lieutenant Governor of Arkansas in 1990 (and Governor from 1992-96), in effect running the state once Governor Bill Clinton began his presidential campaign in earnest in 1991.

Tucker oversaw the passage of the Arkansas soda tax; about its origin, he explains:

“The Medicaid program has been an essential health care service for Arkansas since its inception. It is primarily directed to low income and disabled persons especially women and children – as well as people in nursing homes who have run out of money – to assure they receive needed medical services – and that the hospitals, doctors and other medical personnel providing those services are compensated for doing so.

“In 1992, Arkansas was suffering the effects of a severe recession and did not have sufficient monies to provide our State share of matching funds…The answer was simple: we had to have additional revenue. Someone’s taxes had to go up…Multiple alternatives were considered but our legislative leaders (including now Governor Beebe) finally agreed on a small tax on soda pop – soft drinks – as the source for the needed funds.”

Not a word about obesity. The Arkansas tax was never about fighting obesity; it was entirely about generating money to help pay for Medicaid services for low income women, children, and the elderly.

In fact, not one penny of the Arkansas soda tax revenue was ever, or could ever be, spent on trying to reduce the adult obesity of Arkansas that the San Jose Mercury News author is so concerned about.

Here’s former Governor Tucker again:

“In asking our people to pay this tax, the legislature and I wanted to be sure the funds (a) were used only for the purpose intended and (b) were ‘stored up’ as a safeguard in the event of future revenue shortfalls. That is why we created the “Medicaid Trust Fund” to receive all proceeds. Trust Fund revenue is “Special Revenue” under state law and not available for appropriation for other purposes.”

The San Jose Mercury’s claim that Arkansas instituted a soda tax “for the same reasons Monning and some other Bay Area lawmakers have supported one” is completely false. Arkansas’ sole purpose in taxing sugary drinks was raising money for Medicaid, not for obesity prevention, or nutrition education, or funding better food or more physical activity in schools, or any of the reasons California lawmakers have proposed soda taxes.

Another state with a soda tax frequently cited by the beverage industry as failing to stop obesity is West Virginia, which instituted a 1cent per 16.9 ounce tax on bottled soft drinks in 1951. Again, this tax was never intended to address obesity. According to the legislation, the tax was levied “for the purpose of providing revenue for the construction, maintenance and operation of a four-year school of medicine, dentistry and nursing of West Virginia University.”

Money raised in Arkansas and West Virginia did not go to anything to prevent obesity, but money from California soda taxes would, and it could turn out to be vastly more money than Arkansas has raised. That’s because there’s another big difference between the Arkansas tax and the various soda taxes proposed in California.

The Arkansas tax amounts to just 21 cents on a gallon of soda (128 fluid ounces), or about 2 cents for a typical 12 oz can. Monning’s bill would tax sugary drinks at 1 cent per ounce, or 12 cents per can. The proposed SF tax of 2 cents per ounce would amount to 24 cents per can. Given that the Arkansas soda tax raised $10 million in its first year at just 2 cents a can, imagine how much money could be generated by the higher taxes proposed for California.

What the Arkansas tax proved is that 2 cents per can is enough to generate much needed state matching funds for Medicaid ($267 million by the start of FY 2013) while not forcing consumers away from their favorite sugary drinks. It wasn’t intended to discourage soda drinking – not at all; it was meant plain and simply to raise some money to pay medical costs the state couldn’t otherwise afford. Yet the Mercury News ridicules the Arkansas tax because it didn’t slow the rate of adult obesity.

Let’s repeat that, just to be sure it is clear: citing beverage industry arguments, the media labels a tax in Arkansas, which accomplished its intended purpose (raising money to pay state costs for Medicaid), a failure, because it did not also accomplish a purpose for which it was not intended (reducing obesity).

Really? That’s the argument against a soda tax in California?

One can hardly blame the beverage industry spinmeisters for distorting the facts to fit their own agenda; that’s what they are paid to do. But shouldn’t the news media be expected to do at least a little rudimentary fact-checking before just parroting the beverage industry’s party line?

To paraphrase the Mercury News, if the media goes down the path of opining on a sin tax on fattening foods and drinks, it should develop a thoughtful and comprehensive line of reasoning, not just follow in the pudgy footsteps of the American Beverage Association.

Read other articles in the Soda Tax Myths series:
Soda Tax Myths: Are Beverage Companies Friends to the Poor?

Soda Tax Myths: Soda Taxes Distract from Real Issues

Dana Woldow has been a school food advocate since 2002 and shares what she has learned at Follow her on Twitter @nestwife.

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