Chicago city officials shouldn’t express surprise that Chicago’s new bottled water taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. has brought in just $2 million since going into effect on January 1 through the end of May, far off track for the $10.8 million they hoped it would raise this year. Daley claims that tax revenues would pick up as the weather warmed have turned out not to be the case, as consumers buy their bulk water purchases out-of-town. One retailing expert explains why:
David Vite, president of the Illinois Retail Merchants Association, responded by essentially saying, “I told you so.”
Vite predicted the tax would fall far short as Chicagoans fled to the suburbs to buy cases of bottled water, along with the rest of their groceries.
“Single-bottle sales have not been dramatically hurt. It’s the bulk purchase, the six-pack and the case that has just been killed. There’s no reason someone is gonna pay $1.20 extra for a $4 dollar case of water when they can go to the suburbs to buy it without that,” Vite said.
As we have stated (here, here, here, here, and here), this excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on bottled water is poor tax policy. Rather than cutting spending or imposing broad-based tax increases, politicians increasingly are taking this path, of singling out a seemingly arbitrary item for a heavy tax. Not even trying to pretend that it was addressing some externalityAn externality, in economics terms, is a side effect or consequence of an activity that is not reflected in the cost of that activity, and not primarily borne by those directly involved in said activity. Externalities can be caused by either production or consumption of a good or service and can be positive or negative. , the city instead argued that the tax’s purpose was to “encourage” (via tax penalties) use of the city water system, but all the tax does is induce citizens to travel outside the city for water purchases.Share