Question

Expanded Soda Taxes Stir Pushback

By

Jennifer Maloney and

Shayndi Raice

When Cook County, Ill., needed to plug a budget hole last year, it turned to a new levy on soft drinks it hoped would boost its fiscal health—and the health of its residents.

But pushback has been fierce since the penny-an-ounce tax (Links to an external site.) took effect Aug. 2 in the county that includes Chicago. Retailers are suing the county over the tax, and consumers are suing retailers. State lawmakers on both sides of the aisle have introduced bills that would kill the tax and prevent counties from levying similar ones in the future. A bipartisan group of Cook County commissioners have proposed an ordinance that would repeal the tax.

Several municipalities approved beverage taxes (Links to an external site.) in 2016 and four have put them into effect this year, including Philadelphia (Links to an external site.). Cook County is the largest municipality to implement such a tax.

The taxes, pushed by public-health advocates to counter a national obesity epidemic, are far from popular. But the turmoil has been greatest in Philadelphia  (Links to an external site.)and Cook County, which are using them to generate revenue and haven’t limited them to sugary drinks that have been linked to obesity and diabetes.

Instead, the taxes in these two municipalities can include diet sodas and teas, as well as purportedly healthy drinks such as kombucha and coconut water, leaving consumers frustrated and businesses concerned about the impact on their sales.

The muddled goals could raise questions about the future viability of such taxes.

There is “a phenomenal amount of difference” between the amount of sugar in a cranberry juice cocktail and a sugar-free or low-sugar drink, for example, said Donald Marron, a fellow with the Urban Institute who believes soda taxes can be effective if sugar content is taken into account. “From a public health point of view, there’s no reason to tax those at the same amount per ounce.”

The Cook County board approved its tax in November after discovering a $174 million budget gap. The measure is projected to bring in $200 million in revenue in 2018.

Ammar Rizki, Cook County’s chief financial officer, said the taxes would help fund county hospitals, where the county estimates it covers about $200 million in costs related to obesity and diabetes.

Philadelphia’s tax funds pre-kindergarten, community schools and capital improvements to parks and libraries.

The tax fights (Links to an external site.) have pitted public-health groups such as the charitable foundation of former New York Mayor Michael R. Bloomberg against retailer associations and the soda industry, with each side spending tens of millions of dollars on lobbying and advertising.

“The momentum is on our side, but it is early days in the fight,” said a spokesman for Mr. Bloomberg’s foundation, which is running pro-tax ads in Cook County and Philadelphia.

Studies conducted on sweetened-beverage taxes in Mexico and Berkeley, Calif., show that they reduce consumption of sugary drinks. Researchers say it is too soon to say whether they reduce the prevalence of obesity, but there are signs that some people are turning to water as a substitute, which could improve public health.

Rob Karr, president of the Illinois Retail Merchants Association, said that while the policy is cutting consumption of sweetened drinks, it has penalized retailers. The association sued Cook County to block the tax, arguing that it wasn’t being uniformly imposed on all types of sweetened drinks.

“The sweetened beverage tax helps us make Cook County healthier, safer and more efficient, ” countered Cook County Board President Toni Preckwinkle, a Democrat, in an email.

Jeff Brown, who owns 13 supermarkets in the Philadelphia area, said he has canceled renovations and expansions in his city stores and is focusing on investing in stores in the suburbs.

The tax revenue generated in Philadelphia brought in nearly $40 million in the first six months, though that was 15% below the city’s projections, said a spokeswoman for Philadelphia Mayor Jim Kenney, a Democrat.

“We’re calling it a win,” she said.

1. where would individuals be able to find a substitute, if the tax is applied on a "narrow" or "broad" basis and why?

2. Per the article, what is the negative externality of consuming sugary beverages and what are the social cost to Cook County (hint: what did the finance official say? Please provide that statement from the article which supports your answer.

3. When proposing a tax law the government typically will state how/where the tax revenue derived will be spent towards. Per the article, did the city receive the projected tax revenue they were expecting? If no, why do you think that is the case?

Answer 1

1.A broad-based tax is one that taxes most of the potential tax base. For example, a broad-based sales tax is one that applies to almost all purchases of goods and services. A narrow-based tax applies to fewer items. Most states have a narrow based sales tax that applies only to goods, not services, and has exemptions for things like food, housing and medicine.If taxes are applied on narrow basis on few items like soft drinks then people can opt for healthier substitutes of soft drinks like home made lime water or can have green tea or sugar free ice tea. But if it is taxed on broad basis like if both sugary drinks and non sugary drinks or even healthier drinks like coconut water etc are also included then people will be left with fewer substitutes like water or home made drinks like lime water or other healthier options prepared from items in home like cucumber water, or holy basil water etc.

2.The statement made by financial officer

"Ammar Rizki, Cook County’s chief financial officer, said the taxes would help fund county hospitals, where the county estimates it covers about $200 million in costs related to obesity and diabetes.Philadelphia’s tax funds pre-kindergarten, community schools and capital improvements to parks and libraries."

Consuming sugary drinks result in negative externality like causing diseases like obesity, diabetes and other diseases.The revenue generated from taxing the soft drinks can be used in improving and subsidizing pre-kindergarten, community schools and capital improvements to parks and libraries which will help the society by improving the health and creating educated citizens.

3.As per one of the statement in the article the tax revenue generated bought about $40 million in the first six months which was 15% less as projected.So, the city did not received the projected tax revenue.Firstly it was levied only on soft drinks and not uniformly on all sweetened drinks. So, people can switch to substitute drinks having sugary content. Secondly big retailers shifted to suburbs and cancelled expansions which will result in less sale of soft drinks in city and thus resulting in less tax revenue.