Jim Guy Tucker: For Two Decades, The Soda Tax Has Served Arkansas Well

This guest editorial was written by Jim Guy Tucker, who served as Arkansas Governor from 1992-96 and oversaw the passage of the soft drink tax. His comments first appeared in the latest magazine issue of Talk Business Arkansas, which you can read online at this link.

The Medicaid program has been an essential health care service for Arkansas since its inception. It is primarily directed to low income and disabled persons especially women and children – as well as people in nursing homes who have run out of money – to assure they receive needed medical services – and that the hospitals, doctors and other medical personnel providing those services are compensated for doing so.

Today, roughly 800,000 Arkansas citizens get health care through Medicaid.

In 1992, Arkansas was suffering the effects of a severe recession and did not have sufficient monies to provide our State share of matching funds. Then Governor Clinton and I, as Lt Governor, and his excellent personnel at the Department of Finance and Administration (DF&A) had discussed the problem for months. President-elect Clinton resigned as Governor in early December of 1992. I was sworn in the same day and immediately called a Special Session of the General Assembly for the purpose of addressing this urgent need.

The answer was simple: we had to have additional revenue. Someone’s taxes had to go up. Our State Constitution requires a 75% vote of both the State House and Senate to increase income taxes and most other taxes. An increase in the sales tax only requires a simple majority vote of 51%. However, the amount of funds needed did not justify a general increase in the sales tax.

Multiple alternatives were considered but our legislative leaders (including now Governor Beebe) finally agreed on a small tax on soda pop – soft drinks – as the source for the needed funds. It was to be collected at the wholesale level for administrative simplicity and so that grocery stores did not have to have a different tax rate calculation for soda than for other food items. It amounted to about two cents per can.

This seemed a fair tax to me. Some argued that it was unfair because so many children and low income people bought soda pop. But they also were the primary direct beneficiaries – and frankly, a decrease in the volume of soda purchases by children or adults would not hurt the health of any of our people.

I think the soda pop companies that opposed the tax had a perfectly reasonable argument that they were being singled out to pay for some of this particular program. But it was and is their customers, the citizens of Arkansas, who would pay the tax as it was passed on in the price of the soft drink.

Passing the “soda pop” tax was a major fight. In the Senate we had great leadership from Senators Beebe, Harriman and others. The opposition in the House was led by “Sody” Arnold, a State Representative from Clark County. He was well liked, a veteran legislator, smart and tough….and had soft drink bottling interests. He added a “killer amendment” to our Bill – a chocolate tax! Now, come on! A soft drink tax was bad enough – but a tax on chocolate went way beyond! It was un-American!

We visited with our leaders in the House and Senate and came up with a proposal: Ask our supporters to vote to pass the bill with the chocolate tax on it. In return, I would propose a bill to repeal the chocolate tax immediately when the regular legislative session began in a few weeks.

It worked. The calls of outrage from affected interests came flooding in from across the nation.

During the weeks before the start of the new session the chocolate tax was the law, so DF&A ran the numbers on how much the chocolate tax would raise. It was stunning. A few key legislators learned of the revenue potential and began an effort to keep the chocolate tax. Fortunately, wiser heads prevailed. The chocolate tax was repealed immediately after the regular session began in January.

But the soft drink companies did not give up. They sponsored a well-funded referendum to repeal the tax in November of 1994. Our people answered clearly: 55% voted “Yes” – to keep the tax.  By the way, DF&A has consistently reported favorably on the terrific cooperation provided by the soft drink industry in tax collection and administration.

In asking our people to pay this tax, the legislature and I wanted to be sure the funds (a) were used only for the purpose intended and (b) were ‘stored up’ as a safeguard in the event of future revenue shortfalls. That is why we created the “Medicaid Trust Fund” to receive all proceeds. Trust Fund revenue is “Special Revenue” under state law and not available for appropriation for other purposes. The first year of the tax provided revenues of about $10 million dollars. By the start of FY 2013 the Fund had over $267 million dollars. In subsequent years under both Republican and Democratic Governors other tax revenue, such as ambulance license fees, an insurance premium tax, and a hospital assessment, have been added to the Trust Fund.

I am happy this Trust Fund is available to serve our poorest citizens who are in need, and I am grateful and proud that our citizens voted to provide for these health care needs. Hopefully, we have done so with a relatively light burden on those who savor their soft drinks and those good and legitimate businesses that profit from the sale of their product – and helped our poorest citizens in the process.