Soft Drink Stocks Spend Big to Fight Sugar Tax (KO, PEP, DPS)


Last year, Coca-Cola Co. (NYSE: KO) spent $9.4 million lobbying the US Congress. PepsiCo Inc. (NYSE: PEP) spent $9.2 million) and the beverage industry’s trade association, the American Beverage Association, spent $18.85 million. The object of all these dollars was to kill a proposed tax on sugared drinks that was included in the health care reform bill. Money talks, as it so often does, and the federal tax proposal went down in flames.

Now, the soft drink industry is fighting a more wide-ranging battle against proposed taxes on beverages in at least 20 states and cities. The ABA spent $5.44 million in the first quarter trying to fend of the taxes, while Pepsi spent $3.6 million and Coke spend $1.92 million. Dr. Pepper Snapple Group, Inc. (NYSE: DPS) did not spend any cash either last year or so far this year, according to the web site that tracks lobbying expenditures.

Related: Low Risk Trading Strategies – DPS is a Top Dividend Stock for June

Only the state of Washington has enacted a new tax on soft drinks, and Colorado is the only state so far to remove a sales-tax exemption on soft drinks. Beverage makers are trying to launch a referendum in Washington to kill the new tax of $0.02/12 ounces.

Cities and states that are considering a sin tax on sugar are acting out of desperation to increase revenues. According to the Wall Street Journal, Philadelphia just rejected a soft-drink tax, choosing instead to raise property and tobacco taxes. A bottling company had offered the city $10 million to spend on health and wellness programs as the city council was considering the tax. The council didn’t take the $10 million because “it wasn’t considered the thing to do at this point.” Bribery is never really the thing to do, when it comes right down to it.

The beverage industry’s main argument is that a new tax would harm consumers by raising prices in this period of a slow economy. On the other side, in addition to adding to tax coffers, health officials want to discourage consumption of sugared beverages which is a proven cause of childhood obesity. The Los Angeles Times cites a study in California that estimates obesity and related problems cost the state $41 billion annually in medical expenses and lost productivity.

State and local officials who want to use the proceeds from a sugar tax to initiate programs to combat obesity have a solid case. Those officials who are merely looking for a new revenue stream are using the obesity argument as a shield. Consumers/voters will be able to tell the difference.

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