Earlier this month, Cook County, home to the city of Chicago became the latest and largest government in the United States to implement a sugary beverage tax. Such taxes are gaining popularity across the nation due to their ability to yield revenue to cash strapped cities. In an effort to plug a budget shortfall of $174 million, Cook County intends to raise $68 million in 2017, and nearly $200 million a year from this tax. While the government is sure to gain a lot at the expense of many, they would be wise to closely examine the economic effects and the demographics of the people hit by similar soda taxes across the nation.
This tax will make Chicago one of the most expensive areas in the nation to buy soda. Recent analysis by the Illinois Policy Institute found the tax will increase a 12-pack of soda by $1.44. Combined with Chicago’s own soda tax and Illinois’ sales tax, nearly 33 percent of the entire cost of soda will be due to taxes. Not only will consumers face higher prices, but they will also be left with fewer options in the grocery aisle. In Philadelphia for example, PepsiCo announced it would stop selling all 12-pack and 2-liter bottles to grocery and convenience stores because there was such a drastic decline in demand.
Higher prices on consumers will force many buyers of soda to shop outside of the city. However, low-income individuals tend not to have the means of transportation to buy soda outside the city. These people are usually stuck paying the full price and spend a greater portion of their income on taxes. But for those with the means of transportation, stories from the Chicago region have already surfaced of consumers shopping in nearby areas to avoid the tax. These taxes hurt not only small business owners, but also the people who become unemployed as stores just cannot afford that additional employee. In Philadelphia, for example, many small stores have reported a near 50 percent drop in sales, resulting in some laying off 20 percent of their employees.
Local distributors of Coca-Cola and PepsiCo have explicitly pointed to Philadelphia’s soda tax as the reason for the recent layoffs of 140 workers from their distribution centers. In fact, Philadelphia has raised about 15 percent less than originally estimated because they did not anticipate such a decline in soda sales. So, as the government rakes in less than anticipated, they are doing so at a great cost of middle-class jobs and fewer opportunities for Americans to succeed as business owners.
It is imperative for Cook County, and other cities considering such taxes to carefully examine all the unintended consequences of this revenue measure.