Addressing Retail Food Prices

The relative price of unhealthy foods such as commercially processed baked goods, sweets, and sugary drinks is cheaper than fruits and vegetables in much of the United States.^62,63 Research indicates that food prices are one of the primary drivers of food selection and that higher quality diets are generally higher in cost.^[1] There is cause for concern when a healthy diet is more expensive than an unhealthy diet and people of lower socioeconomic means cannot afford food that is not detrimental to their health.^[2]

BOX 9.1

New York City Sugary Beverage Serving Size Cap

The New York City Department of Health and Mental Hygiene, an administrative agency in the executive branch of the city government, proposed an ordinance establishing sixteen ounces as the maximum size for sugary drinks permitted to be sold in the city's food service establishments. The Department based the restriction on the science that large portions of sugary beverages are linked to obesity, diabetes, and heart disease, all of which were problems in the city at the time of passage. The ordinance had exceptions for milk-based drinks because the science was not as strong for these products, and the ordinance did not apply to retailers designated as grocery stores because they are regulated by New York State. The Department held a notice and comment period and accepted both written and oral comments. In 2012, the New York City Board of Health adopted the ordinance.

The proposed regulation was controversial in no small part because the media called the measure a “soda ban” and characterized Mayor Bloomberg, whose administration passed the ordinance, as a “nanny.”^a Moreover, the American Beverage Association created a coalition called New Yorkers for Beverage Choices to mimic a grassroots movement opposing the measure.^b Such a fake grassroots movement has been termed “astroturfing.” But many citizens, in fact, did oppose the measure as did several city council members. The National Restaurant Association, American Beverage Association, small business owners, their parent organizations, and others sued the city to prevent enforcement of the restriction. The case made its way to the state's highest court.

The plaintiffs argued that the New York City Board of Health did not have the authority to enact the serving size restriction and that the ordinance itself was irrational. The first complaint in the litigation was that the Board of Health had exceeded the authority granted to it by City Charter, and thus, was improperly acting in a legislative capacity. This is a separation of powers argument. As an administrative agency, the Board of Health can act only within the parameters set forth by the legislative body, and thus, it can only make rules according to the powers and duties delegated to it. The majority opinion in the case found that the Board had exceeded this authority. The court found, that because the portion cap rule restricts “activities preferred by large numbers of people” it raised “difficult, intricate and controversial issues of social policy” beyond the preservation of health and safety that rendered it a form of “policy-making, not rule-making.”^c

It is noteworthy that the court added that it would have come to the same conclusion if the Board had enacted an “outright prohibition of sugary beverages.”¹¹ This is not to say that the government cannot ban sugary beverages, which would be contrary to the Supreme Court's statements above, but rather that the Board of Health was not granted authority to make such determinations. Regulatory agencies can enact regulations to carry out the intent of the legislator, but they cannot create new policy.

The second argument in the lawsuit was that the ordinance itself was not rational but rather was “arbitrary and capricious.”⁶ State and local governments have the discretion to use their police power to enact laws and regulations to protect, preserve, and promote the health, safety, and welfare of their population as long as the regulation rests upon a rational basis within the knowledge and expertise of the government body.^f The court majority did not reach this question because it struck down the law on the separation of powers issue. The dissenting opinion in the case, however, found that the “Rule easily passes this test.” It is noteworthy that no lower court found that regulating

(continued)

large portions of sugary beverages was irrational. The trial court found that the exceptions in the rule (for milk-based drinks and grocers) were arbitrary, and the intermediate appellate court did not reach the issue, stating that the “deleterious effects (e.g., obesity) associated with excessive soda consumption are well-known.”^g The legally binding outcome of the portion cap case is that health agencies in New York State cannot pass such a regulation without a legislative mandate. The New York City Council or state legislature could still pass this measure, as could any legislature in the country. Thus, while local governments might be granted police power authority by their states, health agencies must still be granted the authority to act on a particular issue. Political feasibility is a separate matter that likely has deterred future efforts in this arena. As the dissent noted, the rule was “unpopular.”

^aBrad Hamilton. Bloomberg’s Ban Prohibits 2-liter Soda with Your Pizza and Some Nightclub Mixers. New York Post. February 24, 2013. http://nypost.com/2013/02/24/ bloombergs-ban-prohibits-2-liter-soda-with-your-pizza-and-some-nightclub-mixers/

^bReihan Salam. Brief Note on the Soda Ban, Astroturf, and Subsidizing Political Participation. National Review Online. July 12, 2012. http://www.nationalreview.com/agenda/309249/brief-n ote-soda-ban-astroturf-and-subsidizing-political-participation-reihan-salam

°in the Matter of New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, Case No. 134 New York Court of Appeals (June 26, 2014).

^din the Matter of New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, Case No. 134 New York Court of Appeals (June 26, 2014).

^ein the Matter of New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, Case No. 134 New York Court of Appeals (June 26, 2014).

^fJacobson v. Massachusetts, 197 U.S. 11 (1905).

^gNew York Statewide Coalition of Hispanic Chambers of Commerce v. New York City Dept. of Health & Mental Hygiene, 110 A.D.3d 1 (NY App. 1st Dept 2013).

The most straightforward method for government to alter the price of unhealthy products would be to enact a tax. All state governments have the power to enact taxes, but this authority varies widely among local governments. Taxes can be instituted for a variety of purposes, including raising revenue and deterring consumption. The U.S. Supreme Court explained, “a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The principle applies even if the revenue obtained is negligible, or the revenue purpose of the tax is secondary.”^[3]

A legislature would have to decide between enacting a sales tax or an excise tax. Sales taxes are levied as a percentage of the retail price and are added upon check-out. For example, as of 2014, 34 states plus the District of Columbia tax soda sold in retail establishments, while 39 states plus Washington, DC tax soda sold in vending machines, both at an average of 5%.^[4] It is unclear whether these sales taxes appreciably reduce consumption, but they are not generally passed for this purpose.^[5] Further, if sales taxes are considered by consumers, they may encourage bulk purchases or the purchase of less expensive brands of the same item.^[6]

An excise tax, on the other hand, is “a duty or impost levied upon the manufacture, sale, or consumption of commodities.”^[7] They are levied at the manufacturer level and if the manufacturer passes the tax on to consumers as intended, it raises the base price of the product. For example, all states have an excise tax on cigarettes and these are passed through to consumers, increasing the price of such tobacco products by the taxed amount. These excise taxes have been found to reduce tobacco consumption.^[8] Researchers have found that an excise tax on food products would similarly reduce consumption of the taxed product.^[9] Some states have business-related excise taxes on sugary beverages for the purpose of raising revenue.^[10] Although about half of the states and several cities have proposed bills to pass higher excise taxes specifically to deter consumption of sugary beverages,^[11] as of the date of publication, only the city of Berkeley, California, successfully passed a tax for this purpose, discussed further below.

The most common food-related tax proposal by state and city legislatures is for an excise tax on sugary beverages. Such a tax would be levied on the syrup or beverage manufacturer in order to increase the base price of the product. These vary on the percent mark-up, but the majority of bills call for one cent tax per ounce of beverage.^[12] A side benefit of excise taxes as opposed to sales taxes is that the revenue can be earmarked, or dedicated, to a specific purpose. Many bills posit that the revenue could be earmarked for programs encouraging positive health, such as subsidizing fruits and vegetables.

Although taxing sugary beverages is the most commonly proposed food tax for the dual purposes of reducing consumption and raising revenue, other taxation methods have been discussed, including taxing specific ingredients such as added sugar;^[13] taxing categories of food such as junk food,^[14] fast food,^[15] or highly processed food;^[16] or taxing food considered unhealthy according to specific definitions, such as foods high in saturated fats, trans-fatty acids, sodium, and sugar.^[2] At this juncture, it has been difficult for state and local governments to pass food or beverage-related taxes due to opposition and heavy lobbying by the food industry and other political barriers.^[18] Support for such taxes varies around the country but increases when the tax is paired with a plan to earmark the revenue for positive health programs.

Not all local governments have the power to levy taxes. For example, New York State’s constitution declares that the power to tax is held by the state, with specific limited exceptions, and only permits local governments to issue taxes if the legislature grants an exemption.^[19] The lack of state permission is why New York City, which famously sought to address high consumption of sugary beverages through various different means , did not pass a sugary beverage tax. Conversely, Chicago does have such authority and has instituted its own soft drink “occupation tax,” which is imposed on persons who sell canned or bottled soft drinks at retail establishments in the city.^[20] Unlike the Berkeley tax, this was not instituted to additionally deter consumption. Chicago does have its own excise tax on cigarettes which does have that purpose.^[21]

In California, local governments can only pass a business license tax, which is a form of excise tax, through the electorate.^[22] The local government entity must first get the tax proposal on the ballot and the electorate must vote for the measure. Two cities, Richmond and Del Monte, placed a sugary beverage tax on the ballot in 2012, but the voters overwhelmingly rejected these. San Francisco and Berkeley also attempted to pass sugary beverage excise taxes by putting the measure on the ballot in 2014, but only Berkeley was successful. The San Francisco proposal would have placed a two cents per ounce “special” tax on sugary beverages. It would have earmarked the revenue for school nutrition and physical education programs and for installation of water fountains in the city.^[23] A special tax under California law is a tax imposed for a specific purpose. Because the San Francisco tax was a special tax, the city could earmark the funds, but San Francisco needed a two-thirds vote to pass the measure.^[22] The measure garnered approximately 55% of the vote so the tax did not pass.^[25] Conversely, Berkeley proposed a penny per ounce “general” tax, imposed for a general government purpose, with the revenue going to the general treasury, and thus it only needed a majority of voters to pass.^[26] The Berkeley tax passed, garnering approximately 75% percent of the vote.^[25] The Berkeley soda-tax ballot measure was one of the best organized advocacy efforts in food policy history. Local news reports noted that one of the distinguishing factors in getting the tax passed, besides Berkeley’s history of activism, was the powerful use of social media.^[28]

In addition to taxes, other mechanisms exist to increase the price of unhealthy food or beverage products. Recall that in the case discussed above, 44 Liquormart, the Supreme Court’s principal opinion stated that, “higher prices can be maintained either by direct regulation or by increased taxation.”^[29] The concurring opinion explained this could be accomplished by establishing minimum prices.^[30] Minimum price laws have not been utilized in the food context, but approximately 25 states have them for cigarettes. These laws require the addition of a minimum percentage markup to be added to the retail or wholesale price.^[31] Although minimum price laws were originally enacted in the 1940s and 1950s to protect tobacco retailers from predatory business practices, they are now considered a potential method of maintaining higher cigarette prices to deter consumption. The retailers, rather than the government as in the case of taxes, benefit from the increased price requirement.

A second method of directly regulating prices is to prohibit the redemption of coupons or multipack discounts.^[32] Examples of multipack discounts in the context of sugary beverages would be when the retailer sells a case of soda for a reduced price or offers two-for-one deals on liters. Retailers accept coupons or offer multipack discounts that have the potential to decrease the price of products in general, or to pre-tax levels, or to below the minimum price instituted by a law. This would nullify the effect of a tax or minimum price law, or in the absence of these, still decrease the price of a product to encourage increased purchase. Again, this strategy has not been implemented yet for food or beverage, but courts have upheld such laws in the context of cigarettes.^[33] For example, Providence, Rhode Island requires all tobacco retailers to obtain a license in order to operate. It subsequently prohibited such license holders from accepting or redeeming coupons or from selling tobacco products through multipack or other discounts.^[34] This was upheld by the First Circuit as “an appropriate regulation of pricing.”^[35]

• [1] C. D. Rehm, P. Monsivais, and A. Drewnowski. The Quality and Monetary Valueof Diets Consumed by Adults in the United States. American Journal of Clinical Nutrition. 2011;94(5):1333-1339.
• [2] Report submitted by the Special Rapporteur on the right to food, Olivier De Schutter.Human Rights Council. United Nations General Assembly. December 26, 2011. http://www.srfood.org/images/stories/pdf/officialreports/20120306_nutrition_en.pdf
• [3] United States v. Sanchez, 340 U.S. 42, 44 (1950).
• [4] Bridging the Gap. 2014 State-by-State Soda Tax Rates http://www.bridgingthegapresearch.org/_asset/s2b5pb/BTG_soda_tax_fact_sheet_April2014.pdf
• [5] Roland Sturm et al., Soda Taxes, Soft Drink Consumption, and Children’s Body Mass Index.29 Health Affairs. 201011052, 1057-1058.
• [6] K. D. Brownell and K. R. Frieden. Ounces of Prevention—The Public Policy Case for TaxesOn Sugared Beverages. New England Journal of Medicine. 2009;з60(18):1805-1808.
• [7] CCH Editorial Staff Publication. Introduction. In D. Becker (Ed.) U.S. Master Excise TaxGuide (6th ed.). Chicago, IL: Author; 2008, p. 26.
• [8] Frank J. Chaloupka et al., Tax, Price and Cigarette Smoking: Evidence from the TobaccoDocuments and Implications for Tobacco Company Marketing Strategies. Tobacco Control.2002;11(Suppl 1):I62-I72.
• [9] T. Andreyeva , M. W. Long, and K. D. Brownell. The Impact of Food Prices onConsumption: A Systematic Review of Research on Price Elasticity of Demand for Food. AmericanJournal of Public Health. 2010;1000:216-222.
• [10] Berkeley Media Studies Group for the California Center for Public Health Advocacy. Kickthe Can. FAQ about Soda Taxes. 2011. www.kickthecan.info/document/258
• [11] Rudd Center for Food Policy & Obesity. Rudd Report. Sugared Sweetened Beverage Taxes: AnUpdated Policy Brief. October 2012. http://www.yaleruddcenter.org/resources/upload/docs/what/reports/Rudd_Policy_Brief_Sugar_Sweetened_Beverage_Taxes.pdf
• [12] T. Andreyeva, F. J. Chaloupka, and K. D. Brownell. Estimating the Potential of Taxes onSugar-sweetened Beverages to Reduce Consumption and Generate Revenue. Preventive Medicine.20h;52(6):413-416.
• [13] Zhen Miao et al. Taxing Sweets: Sweetener Input Tax or Final Consumption Tax?,Contemporary Economic Policy. 2011130: 344-361.
• [14] C. Franck, S. M. Grandi, and M. J. Eisenberg. Taxing junk food to counter obesity. AmericanJournal of Public Health. 20131103 (1 i):i949-i953.
• [15] L. M. Powell, J. F. Chriqui, T. Khan, R. Wada, and F. J. Chaloupka. Assessing the PotentialEffectiveness of Food and Beverage Taxes and Subsidies For Improving Public Health: A SystematicReview of Prices, Demand and Body Weight Outcomes. Obesity Review. 2013;14(2):110-128.
• [16] J. L. Pomeranz. Taxing Food and Beverage Products: A Public Health Perspective and a NewStrategy for Prevention. University of Michigan Journal of Law Reform. 2013;46(3):999-1027.
• [17] Report submitted by the Special Rapporteur on the right to food, Olivier De Schutter.Human Rights Council. United Nations General Assembly. December 26, 2011. http://www.srfood.org/images/stories/pdf/officialreports/20120306_nutrition_en.pdf
• [18] DuaneD.Stanford. Anti-Obesity Soda Tax Failsas Lobbyists SpendMillions:Retail. Bloomberg. March 13, 2012 http://www.bloomberg.com/news/2012-03-13/anti-obesity-soda-tax-fails-as- lobbyists-spend-millions-retail.html
• [19] NY CLS Const Art XVI, § 1. Powers of taxation; exemptions from taxation.
• [20] The Chicago Home Rule Municipal Soft Drink Occupation Tax, 65 ILCS 5/8-11-6K http://tax.illinois.gov/Businesses/TaxInformation/Sales/softdrink.htm
• [21] Cigarette Tax Hike in Chicago Makes a Pack of Smokes in The Windy City the Priciest inthe Nation. Huffington Post. November 26, 2013. http://www.huffingtonpost.com/2013/11/26/cigarette-tax-chicago_n_4344651.html
• [22] Public Health Law & Policy. Local Taxes on Sugar-Sweetened Beverages in California. http://changelabsolutions.org/sites/default/files/Local-Taxes-SSBs-CA_Legal_Memo-20130513.pdf
• [23] Randy Shaw. 2/3 Vote Could Doom SF Soda Tax. BeyondChron. July 28, 2014. http://beyon-dchron.org/23-vote-doom-sf-soda-tax/
• [24] Public Health Law & Policy. Local Taxes on Sugar-Sweetened Beverages in California. http://changelabsolutions.org/sites/default/files/Local-Taxes-SSBs-CA_Legal_Memo-20130513.pdf
• [25] Frances Dinkelspiel. Why Berkeley Passed a Soda Tax While Other Cities Failed. Berkeleyside.November 5, 2014. http://www.berkeleyside.com/2014/11/05/why-berkeley-passed-a-soda-tax-where-others-failed/
• [26] Dana Woldow. Soda Tax Myths: Is A New Tax “The Last Thing” Berkeley Needs? BeyondChron.June 30, 2014. http://beyondchron.org/soda-tax-myths-is-a-new-tax-the-last-thing-berkeley-needs/
• [27] Frances Dinkelspiel. Why Berkeley Passed a Soda Tax While Other Cities Failed. Berkeleyside.November 5, 2014. http://www.berkeleyside.com/2014/11/05/why-berkeley-passed-a-soda-tax-where-others-failed/
• [28] http://www.beyondchron.org/social-media-helped-defeat-big-soda/
• [29] 44 Liquormart v. Rhode Island, 517 U.S. 484, 507 (1996); see also, National Association ofTobacco Outlets, Inc. v. City of Providence, 731 F.3d 71, 77 (1st Cir. 2013).
• [30] 44 Liquormart v. Rhode Island, 517 U.S. 484, 530 (1996); see also, National Association ofTobacco Outlets, Inc. v. City of Providence, 731 F.3d 71, 77 (1st Cir. 2013).
• [31] Centers for Disease Control and Prevention. State Cigarette Minimum Price Laws—UnitedStates, 2009. MMWR. Morbidity and Mortality Weekly Report. 2010;59(13):386-392.
• [32] J. L. Pomeranz. Using Lessons Learned from Tobacco to Inform Sugary Beverage Tax Policy.American Journal of Public Health. 20i4;i04(3):ei3-ei5.
• [33] National Association of Tobacco Outlets, Inc. v. City of Providence, 731 F.3d 71 (1st Cir. 2013);see also National Association of Tobacco Outlets v. City of New York, 2014 U.S. Dist. LEXIS 83058(SD NY June 18, 2014).
• [34] National Association of Tobacco Outlets, Inc. v. City of Providence, 731 F.3d 71 (1st Cir. 2013).
• [35] National Association of Tobacco Outlets, Inc. v. City of Providence, 731 F.3d 71 (1st Cir. 2013). at 85.