I recently attended a lecture given by Arnold Kling, who is a former Federal Reserve economist on the Board of Governors staff, former senior economist at Freddie Mac, and all-around financial and monetary expert. The...
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- New Soda Tax Proposed in Illinois
New Soda Tax Proposed in Illinois
Earlier this month, Illinois Representative Robyn Gabel (D-18th District) and Senator Mattie Hunter (D-3rd District introduced a bill (HB 5690 and SB 3524) that would add a ‘penny-per-ounce’ excise tax to sugary beverages in hopes to battle obesity across the state. Similar legislation was proposed in 2011 but was shot down by legislators. Rep. Gabel has stated that the new legislation “is projected to produce over $600 million each year for prevention, wellness and Medicaid services” in Illinois.
While legislators are quick to tout benefits of soda taxes, they come at great cost. Research shows that soft drinks, or sugar-sweetened beverages, only account for six percent of calories consumed by Americans, compared to 11 percent from sweets and desserts, and while soft drink sales have declined by twelve percent over the past decade, obesity rates have continued to rise. Several studies have gone on to show that taxation is not an effective way to reduce caloric intake as substitutions offset any projected benefits. In fact, a Cornell study has shown that in households where alcohol was regularly consumed, beer consumption increased by 172.4 ounces per month when a ten percent tax was applied to soda, increasing caloric intake by 1930 calories in the same time frame.
Beyond the economic and practical impact of the proposed soda tax, questions must be raised regarding the fairness of the tax. Soft drinks in Illinois are already subject to a 6.25 percent tax, compared to ‘qualifying food and drugs,’ which are taxed at a mere one percent. Furthermore, in Chicago, an additional 3 percent tax is levied against soft drinks sold at retail. This would mean that the new bill would effectively tax soft drinks twice statewide and three times in Chicago. When including commuters, this would mean that 2.9 million people, or 22.5 percent of Illinois’ population, would have to pay three separate taxes when purchasing a soft drink. The number grows even more when one considers the 46.37 million tourists that visited the Windy City in 2012. What is most troubling, however, is the fact that “sin taxes” have been shown to disproportionately affect low-income individuals.
While it is clear that the intentions of the bill are good, evidence shows that a soda tax would impact a large swath of people and target the poor without even achieving its stated goals. The tax system cannot be effectively used to combat obesity as individuals make dietary choices based on personal preferences and available resources. Arbitrarily levying a regressive tax is hardly the solution.
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