The Pop Tax in Chicago: What Went Wrong?
If you live in Chicago, you have probably heard about the infamous soda tax, which has proven controversial as a policy, with lobby groups and consumers alike decrying the heightened price. With the sweetened beverage tax (SBT) finally repealed, it is important to think about what we’ve learned about this experiment and how it relates to other cities that had implemented a similar policy.
In Chicago, retailers had experienced not only lower soft drink sales, but generally less foot traffic into their stores. Consumers, if not yet switching to e-commerce channels, still look to spend as little time shopping for groceries as possible. A tax hike in their favorite stores was enough to make them switch to a supermarket outside the county. However, the largest chains with a presence in the suburbs still maintained their sales.
So who stood to lose the most? Local grocery chains with little marketing power.
These supermarkets and specialty stores depend on their local customers to keep their bottom line healthy. A county-wide tax changed the decision making of a large portion of Chicagoland’s population: one that lives on the cusp between Cook, DuPage and even Lake County.
This disdain for city taxes is rampant in Chicagoland, evidenced by the abundance of gas stations and convenience stores positioned outside the city limits proudly display “No City Tax” signs in front of their storefronts.
The other half of the story is a growing frustration from Chicagoans about the state of the budget, which politicians have already said the tax is supposed to alleviate. One more tax is not greatly appreciated by the general populous, especially given the tax included low-calorie products, which defeats the purpose of passing such a law. In addition, it’s easier to see this enacted law as a way for the government to make up for their mistakes by punishing the consumer. This defining factor sets Chicago’s and Philadelphia’s soda tax policies apart, who otherwise implemented a similar tax. In Philadelphia, the revenue accumulated from the soda tax has been reserved for the funding of public resources such as K-12 schools, instead of towards a nebulous budget gap. While the soda tax policies are, in many ways, similar between the two cities, the final repeal of Chicago’s SBT was the culmination of much frustration, coming from both the producer and consumer side.
The Berkley case study (which included the same tax rate as Chicago) proved to show interesting results in favor of soda tax as means to reduce sugary CSD consumption, with a decline in CSD consumption matched by an uptick in bottled water sales. Given Berkley’s high average income household and greater consumer awareness of naturally health and organic beverages, the transition was easier and less inconvenient for Berkley. The decision also conveyed a clearer health-minded intention; unlike Chicago, low-calorie CSDs were not taxed.
There are many factors to consider in tax policy efficacy, but in these cases, the willingness to choose substitutes to high-fructose based drinks comes from consumer trends that span organically; it can’t be forced. In the future, Chicago may still stand to gain from reintroducing a sugar tax, but it must coincide with the changing consumer perception and a universally acknowledged benefit of choosing healthier options, which inevitably will occur.