Chicago Bottled Water Tax Washed Up

August 8, 2008

Chicago city officials shouldn’t express surprise that Chicago’s new bottled water tax 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 tax 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 externality, 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.

The court challenge to the tax is ongoing.

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