Don't smash the bottle tax

Economy, Business and FinanceConsumer Goods IndustriesBeverage IndustryFinanceFood IndustryConsumersBelinda Conaway

Perhaps it comes from an excess of caffeine and corn syrup, but the beverage industry and its retail allies always seem to be fired up about one thing or another. The latest example is their crusade to repeal Baltimore's controversial bottle tax that was approved just last year and was instrumental in helping the city avoid a huge budget shortfall.

Under legislation sponsored by Councilwoman Belinda K. Conaway, the 2-cent tax on beverage containers approved in 2010 would sunset in 2012 instead of 2013. That might seem like a minor difference, but it would mean the city would lose approximately $5 million in tax revenue. That's the kind of money that could keep much-desired summer jobs programs or recreation centers open or neighborhood pools in business for another summer.

The beverage industry has been quietly pressing council candidates to commit to the ordinance prior to the Sept. 13 primary election. Its argument? That the higher cost of soft drinks is driving consumers away from city grocers and other vendors and into the suburbs.

Really? Considering that the tax is applied on the wholesale level, it's unlikely a lot of consumers are even aware of it. Except, of course, for all those radio ads the beverage industry paid for last year, when the council was initially considering a 4-cent container tax. They made it sound like the city was about to force its citizens to swallow financial ruin instead of Mountain Dew.

Something about soft drinks just seems to bring out the hyperbole in people — like the supermarket chain that insists its sales have been driven down by the tax, even though the stores allegedly don't pass along the added cost to consumers. Then there was the decision by Pepsi to halt its manufacturing operations in the city last January, in a move blamed on the container tax (even though the tax is still applied whether soft drinks are produced in the city or merely distributed here).

In other words, closing manufacturing didn't save Pepsi a dime. Just like customers at a grocery store that swallows the tax aren't paying a cent more for their soft drinks. So what gives?

Clearly, the beverage industry wants soft-drink taxes off the books, period, and worries that other jurisdictions will follow Baltimore's example. They are particularly worried about potential "fat" taxes applied to high-calorie, zero-nutrition beverages that some have offered as a way to curb childhood obesity and pay for health care.

Admittedly, the beverage container tax is not our favorite way to finance government. It's more costly to the poor than the rich and isn't significant enough as a "sin" tax to reduce litter or change anyone's unhealthful eating habits. But if not this modest 2-cent levy on soft drinks sold in containers smaller than 2-liter bottles, what, exactly, should the city tax — or, conversely, cut from the budget to replace it?

That's a question for next year's budget debate, when the consequences of a $5 million shortfall might be more apparent to all involved. In the abstract, it's easy to advocate for lower taxes on consumers. But when it means laying off police or firefighters, closing recreation centers or reducing some other vital city service, it's a lot more difficult.

Yet, based on recent debates among the city's mayoral candidates, one might think Baltimore's financial outlook was rosy, despite the high unemployment and sluggish economy, and that programs reduced in the recent past are likely to be restored. The truth is that until the economy improves, city government will continue to face hard choices over the next couple of years. Better to keep the container tax on the books until the ramifications of removing it are apparent to the mayor and council.

Copyright © 2014, Los Angeles Times
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