By John F. Di Leo -
Voters in Crook County, Illinois, among the highest-taxed jurisdictions in America, are celebrating a victory today.
In November, 2016, the Cook County Board of Confiscators passed a massive, targeted tax increase, known as ‘the soda tax’ or ‘the sweetened beverage tax,’ though all its names were deceptive, falling short of the full implications of this huge tax on purchases of most non-alcoholic beverages in any venue (from grocery stores to fast food restaurants, from gas stations to bars).
Despite a short judicially-issued delay, the tax went into effect in August, and did so much damage – as predicted – that the county board acknowledged reality quickly and revoked the tax in the fall, scheduling it to terminate at the end of November. This experience provides an opportunity to note – and learn – several economic and political lessons.
The Fundamentals
This was sold as a sin tax. Lots of people in the world are too fat, so if we tax sweetened beverages, maybe people will drink less, and even if they don’t, it’s fairer to place the burden of the high cost of government on disgusting fat sinners than on nice decent people who only drink water. Yes, when you cut through the pap, that was Toni Preckwinkle’s argument.
The tax applied to most non-alcoholic drinks, in all forms, if they’ve been sweetened in any way, either by sugar or corn syrup, or by any artificial sweetener like Nutra-Sweet or Stevia. So this covered both regular soda pop and diet soda pop… and most juices and juice drinks, flavored coffees, Arnold Palmers, in fact almost everything we drink except for water, milk, OJ and booze.
Sold as a one-penny-per-ounce tax, it sounded small at first, until people did the math.
- A one-dollar two-liter bottle would carry a 64 cent tax, which is an ad valorum tax rate of a whopping 64%.
- A two-dollar box of juice pouches would carry a 52 cent tax, a 25% rate.
- A six-dollar 24-pack of sodapop would carry a whopping $2.88 in taxes, for a total rate of almost 50%.
Depending on what drink we bought, and in what size and where from, the tax ranged from 20% to 80%, during the few short months it was collected.
This was therefore one of the highest tax rates set on any product in America, rivaling cigarettes and hard liquor in the USA, and rivaling gasoline in Europe, for a simply outrageous level of taxation. No wonder it horrified and infuriated the community.
The Impact
There are other jurisdictions that have attempted such a tax before. Philadelphia, for example, had just started collecting a similar tax and the results were devastating: hundreds of stores, groceries, fast food places and other businesses closed down or moved across the border to escape the tax in a matter of months, putting thousands of people out of work.
Illinoisans logically warned of the same result, pointing to Philadelphia as physical evidence of the “anti” position. But Toni Preckwinkle and her allies on the board wouldn’t believe it. Cook County would be different, somehow. Fewer people could flee to other jurisdictions, because people in the city are stuck, so they’ll have to buy the stuff locally and pay the tax… and we can afford the tiny amount from the periphery that migrates to the collar counties.
How wrong they were. As soon as the tax went into effect, Chicagoans and suburbanites adjusted their shopping habits. Instead of buying drinks at a nearby store, they’d cross into Lake County, McHenry, DuPage, Kane, or Will Counties, or even Wisconsin or Indiana, to do their shopping in a lower-taxed jurisdiction.
Instead of just receiving less new revenue than they expected, tax revenues plummeted, because without the soda tax, they would have received the normal sales tax on the purchase, and now they lost even that, as the purchase migrated across the border into other counties. Now it was Lake, Kane, DuPage, Will and the rest who got the sales tax revenue that Toni Preckwinkle drove into their welcoming arms.
On top of that, people didn’t just do their drink shopping outside the county; for four months, people moved all their grocery shopping over the border… and their restaurant and fast food stops as well, because it added up. Let’s say you have a $100 weekly grocery bill, of which $10 is in beverages. You aren’t likely to just buy the beverages across the line in the next county; you’ll move the whole grocery purchase. So Cook County lost the tax revenue on that whole order, not just on the beverages.
This is why the county retreated so quickly, only four months after it went into effect. The county board was shocked at how much business the county was losing as a result. Grocery stores, convenience stores, big box stores like Walmart and Meijer, fast food places like Burger King and Wendy’s… they all reported plunging sales as varying percentages of their clientele moved their shopping to the next county over.
We don’t know – and we’ll never know, because they’ll never admit it – exactly how much revenue, and how many jobs, were lost as a result of this failed experiment. How many thousands of employees had their hours cut from week to week as the tax removed customers from stores and restaurants? How many jobseekers, looking for that first step on the ladder, were turned away as places in Cook County said “I’m sorry, we don’t have enough hours for our existing employees, I can’t hire anyone else…” and this is in the kind of entry level business that’s ALWAYS hiring in a normal economy!
So they learned their lesson, or at least part of it, and retreated in the fall. The hated tax is gone, and shoppers are returning to Cook County now.
How many will come back, and how many will stay gone, though? This we don’t know. The regular sales taxes are a bit cheaper in the collar counties – not a lot, but more than a bit – and some of the collar county establishments have cheaper prices… and nicer, roomier stores… and more room in the parking lots… it’s likely that most of the people who left Cook to shop elsewhere will return, but not all of them. Some are sure to have become fond of the Meijer, Jewel, McDonald’s or 7-11 over the county line, and they won’t return. Not most… but ten percent? Twenty? Now that they’ve tried it, and found that those few bucks of savings can be here to stay, with a more comfortable shopping experience, some will definitely keep shopping in DuPage, Will, Indiana and the rest.
So, some of the damage that Toni Preckwinkle has done is definitely permanent. Kudos to those on the board who understood quicker than others, and flipped their votes… but greater kudos to those who knew better in the first place, and voted against it from the beginning.
The History
The United States of America have a long record of engagement on tax issues. Our very War of Independence was spurred on by the many unreasonable taxation efforts of the British Crown in the 1760s: First the Stamp Act, then Champagne Charlie’s Townshend Act taxes, then a tea tax and more in the 1770s.
American colonists responded by tarring and feathering or otherwise assaulting the tax collectors, then by throwing a year’s worth of tea into Boston Harbor. We built a coastwide boycott by 1770, with most businesses in most colonies refusing to do any business at all with anyone in England. And after the revolution, tax protests twice included the raising of a militia-like force to threaten civil war, first against the Confederation Congress, and then against the administration of President Washington.
No such steps were necessary this year. No tax collectors were assaulted, no army arose in the streets, no pallets of pop were tossed into the Chicago River or Lake Michigan. There was no need.
- We are mobile; we could shop elsewhere.
- We have phones and computers; we could telephone and email our county commissioners.
- We have the courts; we could sue the county on the grounds that the tax is unconstitutional (which it most certainly is).
- We have calculators; every week, the politicians could see how much business they were losing, and understand how desperately they needed to stop the bleeding.
In the end, wisdom prevailed, because of this combination of issues. The pressure from voters and businesses, the clear proof that the tax was financially killing the country, all added up to a single, undeniable conclusion: if the county board didn’t backtrack fast, the hole in the budget would be big enough to be seen from space… a new great lake, this one of red ink.
Celebration and Education
Illinois taxpayers haven’t had much reason to smile in recent years. Unfunded pensions and half a million plus illegal aliens are bleeding us dry; our state and local deficits are unequalled nationally, even when compared with other notoriously bankrupt states. And this year’s tax increase in Springfield ensured that the state’s annual outbound migration of about a hundred thousand residents a year won’t be slowed anytime soon.
But we have learned something this year: we have learned how business activity affects our government. We have proven how changing our shopping patterns can indeed cause political change. Not a boycott against a single business or industry, but a boycott against a county, a refusal to reward a tyrannical, thieving local government with the tax revenue they most desired.
What’s next? Cook County needs to cut spending. That’s not easy, with the current burden, but that burden could change. Cook County could repeal its status as a sanctuary county, and start arresting and ejecting criminal illegal aliens. That would save a lot of tax dollars, as they are a net drain on our economy, particularly on the county’s welfare and healthcare budgets. Cook County could be more aggressive in locking up criminals, so the same deputies don’t have to keep arresting and prosecuting the same criminals again and again (although this issue is more a state and federal one). And the county can stop hiring people it doesn’t need, and doing things it doesn’t need to do.
County government should concern itself with roads, forest preserves, property tax assessment, utility services for unincorporated areas, and not much else. Almost everything else the county does, it could – and should – drop.
Cook County government has been exposed to an important rule: that there IS a limit to how much money they can grab from their voters.
But whether they’ve actually absorbed – and learned – that lesson is yet to be determined.
Copyright 2017 John F Di Leo
John F Di Leo is a Chicagoland based Customs broker, writer, and actor. His columns are regularly found in Illinois Review.
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