Why California Lawmakers, Begrudgingly, Banned Soda Taxes

The beverage industry used a tactic that could become more common with other interest groups.
by | September 2018
Soda in a glass with ice and a straw.
(Shutterstock)

Progressives who support soda taxes like to tout their twin advantages. Taxing sugary beverages can cut down on their consumption, reducing obesity and diabetes. On top of that, a levy per ounce can add up quickly to a lot of revenue. This explains why cities from Philadelphia to San Francisco have imposed these taxes in recent years. 

It also explains why the decision of the California Legislature in July to ban such taxes came as a painful blow to many of its liberal members. “I think this is a terrible decision we’re making,” Assemblyman Kevin McCarty lamented.

It was done for purely tactical reasons. The Democrats who rule the legislature said they were all in favor of soda taxes and hated to block local governments from using them, but they felt they had no choice. The beverage industry had spent $7 million collecting signatures to put a measure on the November ballot that would have prevented localities from raising any kind of taxes at all without a supermajority public vote. The measure would also have made it harder for the state itself to raise fees. The industry had created a problem for lawmakers that it agreed to make go away -- if only they stopped the local soda taxes.

There’s nothing new about interest groups using the threat of ballot measures as a negotiating ploy to sway legislators. In California, however, that threat has become much more serious. In 2014, the state enacted a law allowing sponsors of ballot measures to withdraw their initiatives even after they’ve qualified for the ballot. “It allows for the possibility of reasoned compromise and a better result,” former state Sen. Darrell Steinberg, the law’s sponsor, said at the time.

That was the theory. The reality has been something quite different. Two years ago, unions and their allies collected enough signatures for a ballot initiative to raise the minimum wage to $15 per hour. The legislature and the governor appeased the unions by passing a more gradual wage increase that offered more protection for small businesses.

This time around, the beverage industry did something much more brazen. It essentially held all local taxes hostage to get relief on the one specific tax it cared about. That ploy raises all kinds of possibilities. After all, what’s to stop hospitals from sponsoring a measure that would abolish the gas tax unless the legislature votes to increase Medicaid payment rates? “It leads us to wonder if there will be another round of initiative reforms that might address some of these unintended consequences,” says Mark Baldassare, president and CEO of the nonprofit Public Policy Institute of California, “or whether this will be the new normal for the initiative process in California.”

Interest groups with millions of dollars to spend have long since learned to use the initiative process to get their way. Now they have a much more powerful tool. Taking their ideas all the way to the ballot box and then offering to withdraw them -- for a price -- gives them a chance to practice what amounts to political extortion.

Unless the initiative process is changed, California lawmakers may end up voting for quite a few bills they despise in election years to come. “If this is the system, then groups are going to use it,” says Ethan Rarick, a political scientist at the University of California, Berkeley. “For one thing, it worked.”