07 Jul 2018 California Enacts 13-Year Moratorium on Soda Taxes

California Assembly Bill 1838 – the “Keep Groceries Affordable Act of 2018” – imposed a 13-year moratorium on new soda taxes in the Golden State. It was signed into law by Governor Jerry Brown on June 28, 2018.

It is deemed “Blueprint Compliant” because is follows the spirit of a recommendation in Project 21’s “Blueprint for a Better Deal for Black America” which calls for a repeal of soda taxes. But it comes with an asterisk because it came about from a liberal establishment that was doing so to get out of a political alternative they felt was much worse.

This state law overrules any local soda taxes enacted in California in 2018 and prohibits any new ones from being considered through the end of 2030.

AB 1838 was the result of a compromise to stop the “California Two-Thirds Vote for State and Local Revenue Increases Initiative” from appearing on the November ballot. As its title indicates, it would have required a two-thirds approval from voters to approve local tax increases and a two-thirds vote of the state legislature for statewide tax increases.

The initiative was a direct challenge to existing soda taxes like the one in the California cities of Berkeley, San Francisco, Oakland and Albany. While these soda taxes are grandfathered by the law, a soda tax passed in June in Santa Cruz will be blocked by AB 1838. Governor Brown’s signature enacting AB 1838 triggered organizers to withdraw their initiative.

Specifically, the law states that “a local agency shall not impose, increase, levy and collect or enforce any tax, fee or other assessment on groceries” during the 2018-2030 time period. For the purposes of the moratorium, “groceries” are defined as “any raw or processed food or beverage including its packaging, wrapper or container, or any ingredient thereof, intended for human consumption, including, but is not limited to, meat, poultry, fish, fruits, vegetables, grains, bread, milk, cheese and other dairy products, carbonated and noncarbonated nonalcoholic beverages, kombucha with less than 0.5 percent alcohol by volume, condiments, spices, cereals, seasonings, leavening agents, eggs, cocoa, teas and coffees whether raw or processed, including its packaging, wrapper or container.” It does not apply to “alcoholic beverages, cannabis products, cigarettes, tobacco products and electronic cigarettes.”

“Thanks to the initiative process and the citizens of California, Governor Brown and liberal lawmakers were stuck in a political bind in which they had to choose between – for them – what they likely considered the lesser of two evils,” said Project 21 member and California resident Derryck Green.

Project 21’s “Blueprint for a Better Deal for Black America” points out that “sin taxes” on items including fatty foods, sodas, alcohol, tobacco and non-tobacco nicotine products such as e-cigarettes are less about promoting public health than about generating government revenue. It cites a report from the United Kingdom’s Adam Smith Institute that found: “Sin taxes are blunt instruments which are more likely to deter moderate users than abusers. Although the price elasticity of alcohol is -0.44, for heavy drinkers it is a more inelastic -0.28. The same has been found to be true of heavy smokers and excessive eaters: the people who most need to reduce their consumption are the least responsive to price rises.”

The Adam Smith Institute also noted that the bottom 10 percent of wage earners spend four times as much in taxes for cigarettes than the top 10 percent, the bottom 20 percent of wage earners spend nearly twice as much in alcohol taxes than the top 20 percent and the bottom 20 percent spend seven times as much in taxes on fatty foods as the top 20 percent.

According to media reports, liberal lawmakers did not want to vote for the bill and Governor Brown was loathe to sign it. But they obviously feared the consequences of voters imposing a high bar for future taxes if they didn’t come to the table with initiative organizers to find a way to stop future soda taxes. Some conservative lawmakers also opposed the compromise because they supported the higher bar for all tax increases.

Green explained: “In essence, Governor Brown was forced to sign legislation banning soda taxes through 2030. While conservatives favor a supermajority vote to raise taxes as well as levy fees and surcharges on voters, AB 1838 complies with Project 21’s ‘Blueprint for a Better Deal for Black America’ because it eliminates the threat of trivial consumption or sin taxes, which data show effectively redistribute money away from poor people to the middle- and upper-class.”

“To be clear, liberals didn’t have the poor in view when they drafted and voted for this measure,” added Green. “The calculation was to ban soda taxes that disproportionally affect the poor to maintain the unconstrained ability to raise taxes and apply surcharges with a simple majority vote. In other words, the compromise was that liberals chose the greater revenue stream at the expense of a larger share of the electorate.”

AB 1838 does the right thing, but is predicated on the wrong reasons. But it is still Blueprint Compliant because it reduces any burden on those already economically at-risk.