A government health initiative surge recently struck Cook County, Illinois. The tax bill, which was approved in November 2016, was not only aimed to help reduce a budget deficit of $174.3 billion, but also to promote a healthier lifestyle by seeking to decrease the amount of soda beverages consumed.
Beginning August 2nd, 2017, purchasers of bottled sweetened beverages in Cook County such as soda, sports drinks, flavored water, energy drinks, pre-made sweetened coffee and tea with less than 50% milk content will be taxed $0.01 per fluid ounce. For example, a 1-gallon of Coca-Cola (128 fluid ounce) will get additional taxes of $1.28 on top of the sales tax. The bill exempt drinks such as 100% fruit juice with no added sweeteners and milk, soy, rice, or similar milk substitutes that are the primary ingredient (more than 50%).
Although this tax bill might seem well-intentioned, the fact that it is too expensive and burdensome might not produce its intended results. Moreover, the tax bill also excludes a population group that needs the “help” the most.
Basic economics principles state that when there is a price increase of a good, the quantity demanded for that good decreases. This is what the Cook County government hopes to achieve with this tax — it hopes that the residents of the county will deplete their sweetened beverages intake, which is known to be associated with increased risk of obesity and diabetes. However, there are many solutions where consumers can easily circumvent this burden.
This is where this tax becomes ineffective; the consumers of sweetened beverages can just drive to the neighboring county to buy sweetened beverages without having to worry about the tax. Despite the slightly larger gas bill, this solution becomes increasingly appealing, since the additional taxes that customers pay in Cook County makes it worth it to drive to the neighboring county.
For example, in a series of interviews conducted by the Chicago Tribune, shoppers admitted to driving to the neighboring Will County simply to buy sweetened beverages. One of the interviewees, Bill Watson, stated that he saves $11.52 by buying sweetened beverages in Will County. Another interviewee, Laurie McKeown, 60, of Homewood, saved $5.76 in taxes by buying four 12-packs of 12-ounce cans of Pepsi outside of Cook County.
If consumers drive to Will County and buy soda beverages in bulk, although they will spend more money on gas, the amount of money they save by not paying the Cook County taxes exceed the cost of gas.
Supporters of this tax might look to the success of similar sugar tax implemented in Mexico, where the amount of sugary drink purchases decreases 5.5% and 9.7% in the first and second year, respectively. However, we need to take into account the fact that the residents in Mexico aren’t able to simply drive to a nearby county to avoid the taxes; their options are limited because this tax is implemented through federal mandate, not a specific small region.
Moreover, there are evidence that large increase in soda tax has little to no effect in reducing obesity. Recent research by health economist Jason Fletcher from the University of Wisconsin-Madison reveals that although soda tax manages to reduce soda consumption, it does not reduce overall calorie intake, which is the main factor for obesity. According to Fletcher, large increases in soft drink taxes are unlikely to reduce total caloric intake and its effect on reducing body mass index is minuscule and statistically insignificant. This is because individuals who reduce their soda intake due to taxes simply substitute those calories with other source of sugar, whether it’s in liquid or in the form of food. Moreover, a soda tax implemented in 1990 in the state of Ohio increases the body mass index instead.
The tax also excludes those 872,000 individuals who are enrolled in the Supplemental Nutrition Assistance Program (SNAP). The enrolled individuals are those whose household income is at or below 130 percent of the poverty line. These households receive benefits in the form of loaded Electronic Benefit Transfer Card, which can be used to buy foods at the supermarkets or grocery stores. The problem with this exemption is that since sweetened beverages is very dense on calories, albeit unhealthy, these individuals will not be encouraged to decrease their consumption of sodas or other sweetened beverages.
The SNAP tax exemption could lead to further problems as soda and sweetened beverage consumption is associated with increased risks of diabetes and obesity. While the exemption is well intended, low income earners are more susceptible to financial bankruptcies as a consequence of high medical expenses. With the ultimate goal of the tax being to discourage a type of behavior, rather than raising revenue, excluding bottom earners from the tax does not make a lot of sense. If anything, bottom earners would be the group of people with the most to gain from reducing their sugar intake.
The recent introduction of this tax bill is both well-intentioned and controversial. However, from the early response by County Cook’s citizens, it is apparent that the tax rate is more expensive than it needs to be. Past evidence points to this tax not being effective in actually reducing obesity rates. If the government of Cook County is keen on reducing the risk of obesity by introducing this tax bill, it should not exclude the group of low income individuals which this bill will help the most in the long run. Nonetheless, the long term effect of this tax is remained to be seen.