Remember the Pepsi Challenge? All across America in the 70s and 80s, Pepsi held blind taste tests to prove that Americans prefer its soda pop to Coca-Cola. Now Pepsi faces its own challenge and a choice. Would it rather do business in a city that slaps “sin taxes” on its product or move to a friendlier clime? Guess which choice it made.
Last year, the Baltimore city council passed a 2-cent tax on bottled beverages. This week, Pepsi decided to cease manufacturing at its Baltimore plant and lay off 77 workers while continuing production in the rest of the state. The Baltimore Sun reports that the city’s tax is partially to blame:
While retailers have said they feel the brunt of the beverage tax, Pepsi officials said the levy also affects manufacturers and distributors, and signals an unfriendly business environment. As sales for retailers decline because of the tax, they buy less from the manufacturers, Pepsi spokesman Mark Dollins said.
“When we’re looking at where to do business … we look at what we believe is an environment where we can invest and production lines where it makes the most economic sense,” Dollins said.
Pepsi considered other factors in addition to the tax in making its decision (such as streamlining operations), but as spokeswoman Kristine Hinck said, “Given the climate, making a beverage in a city where there is a beverage tax certainly doesn’t help.”
And there’s the rub. Just as city councils have choices on how to plug holes in their budgets, companies have choices on where to do business. But Baltimore isn’t alone. Cities, states and even Congress slap “sin taxes” on things like candy, fast food and tobacco because they’re a way to close budget holes and fund more spending while taking a swipe at politically incorrect consumer goods. But guess what? They have consequences, and not just on a local level.
As Heritage’s Curtis Dubay writes, companies in the United States will soon be hit with the highest corporate tax rate in the world, which is driving businesses and jobs to other countries. Dubay recommends that Congress “lower the rate so it is equal or below the 25 percent average of our competitors.”
Just as Pepsi fled Baltimore, other companies could make the choice to flee America and take manufacturing jobs right along with them.