Soda taxes: Pitched as a solution, they only cause problems

Soda tax advocates promise healthier communities and balanced budgets. So far neither promise has materialized anywhere the tax has been imposed, but that isn’t stopping more cities from using those dubious arguments to justify increasing taxes on their poorest citizens.

Cook County, Ill., is the latest to experiment with soda pop social engineering.

It’s not off to a rousing start. Implementation of the tax was postponed for a month by a lawsuit filed by the Illinois Retail Merchants Association, contending the tax violates the state constitution by not uniformly taxing similar products. The tax affects all pre-packed sugary beverages such as soda, sports drinks, and juice products, but is not applied to prepared-to-order drinks such as tea, coffee, or mixed drinks.

Three major soda retailers have already been sued for charging consumers incorrectly. And the U.S. Department of Agriculture told Illinois officials that the tax violates federal law, which bars taxation of purchases made with Supplemental Nutrition Assistance Program benefits. With more than 1 million SNAP recipients, Illinois faces the loss of federal funding if it doesn’t make changes to satisfy the USDA.

The penny-an-ounce tax drives the average cost of a two-liter bottle of soda to about $3.50, with 67 cents of that from the new tax; all taxes now account for a dollar of the cost. That puts Cook Country right behind Philadelphia, which also has a soda tax, as the most expensive soda in the country.

Proponents argue the tax is a smart way to tackle multifaceted health and budget problems. The county government expects the tax to generate $67.5 million in revenuethis year and $200 million in 2018. And they also argue that the higher costs will drive people to switch from soda to healthier alternatives.

Why they believe this is something of a mystery, because it hasn’t worked out that way for other cities that have imposed a soda tax.

During the first two months of the 1.5-cent per ounce soda tax in Philadelphia, suburban distributors saw sales jump 20 percent, while inner-city suppliers saw sales plunge more than 30 percent. As residents took their business to the suburbs, local businesses eliminated jobs at a frightening pace.

Jeff Brown, CEO of Brown’s Super Store, said the impact of customers shopping in the suburbs is “nothing less than devastating.” He said he has cut more than 6,000 hours of employment per week – the equivalent of 280 full-time jobs.

The beverage tax falls disproportionately on low-income residents, who are the biggest consumers of the beverages being taxed. Poor families are forced to swallow the cost while Philadelphia’s middle- and high-income shoppers simply drive outside the city to purchase sugary beverages and the rest of their groceries. And the lost jobs belong almost exclusively to the working poor.

The same is likely to happen in Cook County. A survey by the Illinois Manufacturers’ Association found that nearly 87 percent of residents expressed disapproval of the new beverage tax and are looking for ways to avoid it. As Sarah McBride of Cicero told the Chicago Tribune, “I’m going to make time to go shopping outside the city because they don’t have the tax. … I’m going and getting a lot of pop.”

report from the Can the Tax Coalition found that the tax puts at risk 6,100 jobs and $1.3 billion in economic activity in Chicagoland. And because soda taxes drive shoppers away from cities that impose them, revenue projections don’t pan out. Philadelphia is likely to fall short by as much as $14 million this year.

The same results are almost certain to befall Cook County. Pitched as a cure-all, Cook County’s soda tax is much more likely to result in a sugary headache.

Cameron DeSanti is a policy analyst intern at Americans for Prosperity.

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