If you hadn’t been aware of it, the State of Illinois’s increase in the state’s personal income tax rate isn’t the only tax in the news hereabouts. There’s been quite a kerfuffle about the steep tax on soda and other sweetened beverages approved by the county board here last November. The retailers complained bitterly about the tax and got a judge to agree with them. A stay of the tax was ordered and now Toni Preckwinkle, Cook County Board President, is whining about the impact of the absence of the revenues expected from the tax.
The editors of the Chicago Tribune remark:
Cook County Board President Toni Preckwinkle is frustrated. She can’t implement the new tax on soda and other sweetened beverages that the board approved last November. The tax is on hold due to a last-minute court challenge, sinking Preckwinkle’s budgets — this year’s and the one she’s drafting for 2018 — into the red.
After warning that a delay in the scheduled July 1 launch of her soda tax would mean layoffs, on Friday she announced pink slips for some 300 county workers and the closing of another 600 vacant positions. She said more job cuts are expected, all because the Illinois Retail Merchants Association is fighting the soda tax in court and has won the first round.
In other words, Preckwinkle blames the retailers’ association for the loss of county jobs.
No, no, no. The retail group is leading the charge in court, but anti-tax rebellion is a trend Illinois politicians should be noticing by now. Five years ago, a soda tax might not have provoked an insurgency. Today is different.
Taxpayers, particularly in Chicago and Cook County, are sick and tired of being nickeled-and-dimed. And they’re not dumb. They know the soda tax is only the latest string of spaghetti Preckwinkle tossed at the wall to see if it would stick.
It joins the pasta bowl of amusement tax hikes, most of which got dropped in favor of a hotel tax hike in 2016, which followed a sales tax hike in 2015. Remember how Preckwinkle got elected in 2010 on a pledge to eliminate then board President Todd Stroger’s 1-percentage-point hike in the sales tax, only to reinstate it?
That’s classic Cook County. Chicagoans see their property taxes on the rise (don’t forget, your payment is due this month). They notice higher water bills, emergency service tax hikes, parking taxes, cable taxes, you name it.
Chicago also has a tax on streaming services—a Netflix tax. To place all of this in context Chicagoans already have the highest sales tax of any major city in the country. Property taxes are rising sharply—mine went up by 10% from last year to this.
I would also be willing to bet that the county board didn’t take run-on effects into account when they were calculating the revenues from the soda tax. A dollar less spent on soft drinks doesn’t necessarily mean that consumers will spend that dollar somewhere else in the store. In Philadelphia and New York and other places that have imposed a comparable soda tax sales of the taxed beverages declined by 30-50% while sales of bottled water increased by 10%. That’s far from a dollar-for-dollar swap. And that means reduced sales taxes for the county.
That loss in sales is the reason the retailers pushed back against the tax. I don’t know the precise figures off the top of my head but I do know that grocery stores operate on very small margins—around 1%. Their markup on dairy products is around 20%, most other products around 10%, but the markup on soft drinks is higher. I’ve seen reports of as much as 30%. Of course the retailers pushed back.
And the tax is a regressive tax. Of course consumers will push back.
The larger point is that government at all levels needs to get its arms around the idea that there are limits to how much tax revenue they can collect as a percentage of incomes. That means they’ll need to learn to say “No” both to the people in their jurisdictions but to public employees as well.
That’s not politics. In Cook County you practically need to form a search party to find a Republican. It’s mathematics. And psychology.
“In Cook County you practically need to form a search party to find a Republican. It’s mathematics. And psychology.”
And a lesson that politicians need to learn over and over. Talking to a buddy of mine last night who is still in River Forest he told me Republicans in the state senate folded like paper recently. Job preservation. I can’t imagine the can travelled down the road more than a year or two, but perhaps the rating agency whores are mollified. He also tells me there is renewed interest in the house he is selling as people exit the city.
Yeah. John Kass calls the agreement between Illinois’s Democrats and Republicans in the legislature and elsewhere to preserve all of their jobs “the Combine”.
This is not a promising financial basis for almost 1000 position or jobs. I guess I’ve become skeptical of the effectiveness of pigovian taxes, but Philadelphia seems to have demonstrated they work, even though their mayor thinks they are supposed to increase revenue. Is there a divide between those that think such taxes are supposed to reduce sales and those that think they are simply taxes on sinful behavior and thus it is fairer to raise revenue from them?
I don’t think it’s a simple calculation, PD. An addicted smoker will still pay the taxes, and smoke. But it’s also true the smoker, if he or she lives reasonably close to a state border, will travel and cross a border to reduce his or her tax burden. A small portion will change behavior. I think the only thing you can say is about the aggregate: it will be affected.
I don’t think politicians really get often to fairness. Economists might. Rather, it’s where the money is and how do I extract it. I don’t think John Kass, or me, are overly cynical.
Economically, I could easily have stayed in IL no matter what they do. So could just about all the people I’ve run into here and other retirement venues. Some have family ties. Some work issues. Others weather or health or just momentum etc that hold them in place. But, in the aggregate, a not insignificant number of people just say no to the continual draw on their economic resources out of a sense of fairness and “because I can” move. It’s an empirical reality.