Coke, Pepsi step up spending after being targeted by healthcare reform tax

Coke, Pepsi and other soda makers super-sized their lobbying spending this year because of their anxiety about healthcare reform.

The cause of their consternation was a proposal, floated in both the House and Senate, to levy a new excise tax on sugary drinks. At around 3 cents per 12 ounces of soda or similar drinks, such a tax could raise $24 billion over 10 years to help pay for healthcare reform.

“It’s safe to say it’s one of the biggest public policy threats the company has ever seen,” said Galen Reser, vice president, Washington, of government affairs for PepsiCo.

Neither the healthcare bill that passed the House this month nor the measure the Senate will take up in December includes the soda tax, as the panels with jurisdiction on taxes didn’t include it in their healthcare bills.

Still, proponents of taxes on soda and alcohol view the upcoming Senate floor debate as a new opportunity, particularly because so many Democrats want to amend the bill with more generous health benefits, lower other news taxes or minimize spending cuts in Medicare.

“As the Senate focuses on completing action on health care reform, we would like to remind you of the availability of substantial new revenue sources that could help contain spiraling health care costs,” Julie Greenstein, the Center for Science in the Public Interest’s (CSPI) deputy director of health promotion policy, wrote in an email sent to Senate health aides last week. The e-mail’s subject heading was titled: “Looking for an Offset to Finance Real Health Care Reform?”

Officials at the American Beverage Association and PepsiCo have no regrets about opening up their war chests this spring and summer.

Pepsi had reason to be concerned. “There was a lot of noise out there,” said Resar. “It’s always a matter of: When do you react?”

President Barack Obama did his part to make the soda companies sweat.

In an interview that appeared in the July issue of Men’s Health, Obama said a soda tax is something that should be explored. “There's no doubt that our kids drink way too much soda,” he said. “If you wanted to make a big impact on people's health in this country, reducing things like soda consumption would be helpful.”

In April, the New England Journal of Medicine published an article promoting the soda tax. Obama later nominated one of its authors, then-New York City public health chief Thomas Frieden, as the director of the Centers for Disease Control and Prevention.

In addition, soft drink companies have been battling state and municipal taxes on their products for years. For instance, the industry and its allies beat back New York Gov David Patterson’s (D) proposed soda tax this year and supported a ballot initiative to repeal a soda tax approved in Maine last year.

Kevin Keane, vice president for public affairs at the beverage association, said: “This is the first time we’ve had this serious of a threat of an excise tax at the federal level.”

He added that the industry has dialed down its activity this month as it has become clear the tax will not be in a healthcare bill. “We’re certainly encouraged that we’re pretty far down the road and we’re not in any major legislation,” he said.

Most of the increase in the industry’s reported lobbying expenditures through the first three quarters of 2009 is due to the decision to include money spent on advocacy advertising as a lobbying expense.

The soft drink companies ran a media blitz in and out of Washington to fight the tax on television and in newspapers, including The Hill.

The new lobbying rules that went into effect this year do not mandate ad costs being reported as lobbying but the association and Pepsi both erred on the side of caution, the officials said. The Coca Cola Company did not respond to requests for comment.

For the first three quarters of this year, the beverage trade group reported $8.7 million on lobbying, according to the Center for Responsive Politics. Even though Keane said about $5 million of that was dedicated to advertising costs, it still represents a significant break from historical trends. The trade group spent just $668,000 on lobbying during all of last year, a figure consistent with its lobbying budget this decade.

PepsiCo has spent $4.2 million through the first three quarters of 2009 compared to $1.2 million for all of last year. Much of that new money went to advertising but that the company also increased its direct lobbying activities, including hiring two new in-house lobbyists, Reser said.

Coca Cola spent $4.6 million through three quarters of this year compared to $2.5 million in all of last year. Coke also embarked on a solo Washington-targeted advertising campaign as a complement to its participation in the association and in coalitions with other business groups.

The advertising expenditures pale in comparison to the soft drink rivals’ revenue.

PepsiCo last year had worldwide revenue of $43.3 billion while Coke’s was $31.9 billion, not including affiliated but separately incorporated entities carrying the Coca Cola name.

Moreover, the combined spending of Coke, Pepsi and the beverage association pales in comparison to what K Street’s heavy hitters have spent on lobbying so far this year. The top-spending business group, the U.S. Chamber of Commerce, spent $65.2 million on lobbying through three quarters of this year. General Electric, the biggest-spending company, reporting $19.7 million in lobbying during that period.

Emotions ran high in the soft drink industry. Coke’s chairman and CEO, Muhtar Kent, compared the soda tax to Communism during a speech in Atlanta this September.

“I have never seen it work where a government tells people what to eat and what to drink,” Kent said, according to Bloomberg News. “If it worked, the Soviet Union would still be around."