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 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. 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 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. 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 taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. , 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 taxA regressive tax is one where the average tax burden decreases with income. Low-income taxpayers pay a disproportionate share of the tax burden, while middle- and high-income taxpayers shoulder a relatively small tax burden. is hardly the solution.
Check out our larger studies on sugar and snack taxes here.
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