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Sodas Survive Tax in Cook County

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Sodas Survive Tax in Cook County

October 10, 2017

In a welcome turn of events, Cook County’s misguided sweetened beverage tax could be overturned in a vote this week. The board had passed the tax in November 2016, and went into effect in August of this year after a lawsuit challenging the tax was dismissed.

Commissioner Sean Morrison recently announced that 12 commissioners have agreed to end the tax, which would be enough to override a potential veto from Cook County Board President Toni Preckwinkle. One commissioner cited “overwhelming opposition” from his district as the reason he flipped from supporting the tax to voting for its repeal.

As I wrote previously, unlike some other city or county sweetened beverage taxes focused on potential effects on health, Cook County’s primary aim was revenue generation to try to paper over the county’s budget problems. Preckwinkle confirmed this explicitly in her presentation of the 2018 budget, saying the tax was “first and foremost, because of the revenue.”

The tax was beset with implementation problems throughout. Much of the burden would be borne by lower-income households, and revenue generation would be likely to fall short of overly optimistic projections.

Cook County does have substantial budget problems, but the tax was the wrong way to try to solve them. Now, after some serious backlash from residents who face tax increases seemingly every year, commissioners are set to vote on a repeal which would end the tax on the first day of December.

In her budget presentation, Preckwinkle highlighted projections showing the budget shortfall that would result from the tax’s repeal, to the tune of a $201 million deficit in FY2018, and significant shortfalls through 2022.

However, the same report shows why the sweetened beverage tax was never going to be able to solve the County’s ongoing budget problems.

The recent experience with the cigarette tax should have been a sign that relying on a sweetened beverage tax to generate revenue of the magnitude they were projecting would be misguided. Even as the rate of the cigarette tax has increased, revenue has been falling due in part lower consumption caused by higher prices. Cook County’s Alcoholic Beverage Tax has seen a similar decline in revenue, as it is projected to raise $37 million in FY2018, down from $38.5 million the previous year.  Philadelphia’s soda tax, while different than Cook County’s on some specifics, has also fallen short of initial revenue projections.

One way people respond to the higher prices created by the taxes is by consuming less. When the main aim of the tax is revenue generation, as was the case with the sweetened beverage tax, this makes reliance on substantial revenue over multiple years a dubious proposition. As the budget recommendation recognizes, “a number of critical revenue sources are declining over time or growing at rates below general inflation. This makes structurally balancing the budget difficult and necessitates difficult decisions.” Layering on an additional tax in the form of the sweetened beverage levy would not solve structural balance problems, and only kick the can down the road for a few years at most.

Some of the suburban mayors are now also worried that the cumulative effect of the taxes is driving Cook County residents to Indiana for bulk purchasing, further depressing the county’s revenue generation.  

Unfortunately, so far there does not seem to be widespread support for reforms or reductions on the expenditure side. There are only $35 million in cost reductions included in the FY2018 budget recommendation. Finance Chairman John Daley has said he will bring together the county’s elected officials to the County Board Finance Committee to identify areas of waste and where the budget can be trimmed. According to an analysis by the Illinois Policy Institute, more than 2,200 Cook County workers earn salaries in excess of $100,000. Commissioner Richard Boykin has suggested that eliminating the hundreds of vacant positions in the county budget could generate tens of millions in savings, as would a partial hiring freeze with exemptions for certain positions.

The meeting of the County Board Finance Committee is a welcome step, and officials should work together to find new solutions to the budget problems beyond the well-worn move of passing a tax increase.

The sweetened beverage tax was one tax too far for overtaxed Cook County residents, and the tax will now be repealed due to their strident opposition. County officials should take the fiscal health of the county seriously, and work to find measures that would actually solve the problem, instead of piling another regressive tax onto Cook County residents that would only serve as a temporary stopgap.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes

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