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Tax and Budget

Soda Tax Shelved ‘Behind Budget’

State Rep. Mike Stewart, D-Nashville, has proposed boosting the tax on soft drinks and lowering the taxes on other groceries. But his plan may ultimately fizzle this session.

Stewart’s HB 537 would increase the tax on sugary drinks by one cent per ounce and lower the tax on food from 5.5 percent to 4.5 percent. It would mean the soft drink tax alone on a 2-liter bottle of soda, at 68 cents, would exceed the 62-cent tax on a pack of cigarettes.

“I just don’t see how anybody can say it’s any big deal to pay a little more for a Coke so that somebody down the street doesn’t have to pay more for, or can pay less, for food for her children,” Stewart said.

Raymond Thomasson, president of the Beverage Association of Tennessee, said it was indeed a very big deal — and not just to the companies he represents. He rallied against attempts to “(use) tax policy to interrupt an individual’s right of choice and personal responsibility.”

“Soft drinks are not alcohol, and they’re not tobacco,” Thomasson said. “The sponsor has equated them the same. No one is being arrested by the police for driving a vehicle and abusing the consumption of a soft drink.”

Under the bill, a standard 12-ounce can of soda would cost an extra 12 cents. The bill would have the effect of increasing state revenues by $8.9 million annually, according to a legislative analysis. Stewart says his plan is “not a tax increase”; rather, it is “a tax swap.

“All it does is take the tax off food like milk and eggs that people have to buy, and you pay for that by slightly increasing the tax on sugar-sweetened beverages,” he said.

The bill was pushed back Wednesday in the House Finance Subcommittee behind the upcoming budget hearings, a move that typically means a particular piece of legislation won’t see the light of day again for the rest of the legislative session.

Stewart, however, expressed optimism after the committee meeting that his bill’s not dead yet.

“I can easily correct the fiscal impact to make sure that local governments are held harmless,” he said. HB 0537’s “fiscal note” declares that the measure would decrease local government revenues by $3,015,300, while increasing state revenues $8,888,300.

There were 29 states with soft drink taxes, including six in the Southeast — North Carolina, South Carolina, Georgia, Kentucky, Florida and Mississippi — as of a 2009 survey by the Henry J. Kaiser Family Foundation. Nationwide, Rhode Island and New Jersey had the highest tax rates on sodas at 7 percent, though neither had a general sales tax on food. Of the 14 states with a food tax, Tennessee had the third highest.

Proponents of the bill say that such a tax increase would dissuade consumers from buying sugary soft drinks, which would improve public health. But an April 2010 study in the medical journal Health Affairs found that soda taxes need to be as high as 18 percent in order to make a significant difference.