Chicago Adopts Soda Tax

For Chicago, sweetness now comes at a price.

The Windy City is the latest place to find itself on the front lines of the war on sugar after a Circuit Court of Cook County judge ruled on Friday to lift a temporary ban on the controversial tax on sweetened beverages that was narrowly approved by the county board last November. The one-penny-per-ounce tax, which officially goes into effect today in Cook County, makes Chicago the most populous American city to adopt legislation aimed at steering consumers away from sweetened drinks in the name of public health.

Judge Daniel Kubasiak had granted a temporary restraining order blocking the tax in July, in the wake of a lawsuit filed on June 27 by the Illinois Retail Merchants Association (IRMA), which represents over 20,000 stores in the state, and some individual grocers alleging the Sweetened Beverage Tax Ordinance violates the state constitution in levying different taxes on similar products. At the time, Judge Kubasiak said that the group “have persuaded the court that a fair question exists as to the constitutionality” of the measure and therefore the court would delay the original start date for the tax on July 1 while the case was reviewed. Cook County Board President Toni Preckwinckle reacted to the postponement by announcing layoffs for 300 county employees and the closing of 600 vacant positions.

But in dismissing the suit last week, Judge Kubasiak cleared the way for the tax to officially begin collection on August 2. In his ruling, he wrote, “The only question and duty before this court is to determine if the merchants have set forth sufficient substance in the verified complaint to withstand the county’s motion to dismiss. The court concludes that the merchants have not, and that the county’s motion to dismiss must be granted.”

“While we are disappointed by the judge’s ruling to dismiss the Cook County sweetened beverage tax last Friday, we continue to weigh our legal options to find the best path to move forward,” read a statement posted to IRMA’s Facebook page on Monday. A second post later the same day read: “We have filed an appeal on the Circuit Court’s decision to grant Cook County’s Motion to Dismiss the Sweetened Beverage Tax lawsuit. Looking forward to our day in court.”

The American Beverage Association, a trade organization representing the non-alcoholic beverage industry, did not issue an official statement on its website, instead highlighting in a post yesterday a report from a local Chicago CBS affiliate that featured an interview with a small business owner voicing concern that his store’s sales could fall by 20 to 30 percent. “Unfortunately, Cook County officials did not learn from the mistakes of Philadelphia where a similar tax has sent shoppers fleeing the city to avoid the tax, caused steep sales declines and cost jobs,” read the post.

In a statement released after Judge Kubasiak’s ruling, Can the Tax, a grassroots anti-tax group, implored Cook County commissioners to take action. “This tax hits Cook County families with enormous price increases, places at risk 6,100 middle class jobs and $1.3 billion in economic activity, and will devastate our small businesses by sending shoppers to stores over the border. These are risks Cook County residents cannot afford and County commissioners should act immediately to repeal the beverage tax.”

Meanwhile, local public health groups predictably lauded the judge’s ruling.

“We applaud today’s court ruling to dismiss the Retail Merchant’s request to block the implementation of Cook County’s sweetened beverage tax,” said Karen Larimer, president of the American Heart Association Metro Chicago board of directors, in a statement. “Revenue from this tax will allow the county to maintain and improve vital services like the healthcare and public safety systems, and launch diabetes awareness and lifestyle centers in the County Hospital and Health System focused on nutrition and physical activity.”

IRMA’s suit and its focus on the issue of imposing different taxes on similar beverage products highlights the unique composition of the ordinance. Cook County’s tariff applies to both sugar and artificially sweetened drinks served in bottles or dispensed from fountains, though sweetened beverages prepared on-demand, such as a latte from a coffee shop, are exempt. Juice products that aren’t 100 percent fruit or vegetable juice are taxable, while juice concentrates and powders are not.

The proposal was amended in June to exempt purchases made with benefits from the Supplemental Nutrition Assistance Program.

Cook County’s operating budget for this year includes $4.4 billion in spending, of which $67.5 million was set to come from the beverage tax. Revenue estimates rise to $200.6 million next year. The tax is collected by distributors during the sale to retailers, which are then required to directly pass the tax along to the consumer.

In a statement sure to assuage some fears, Preckwinkle tweeted on Tuesday “Unsweetened sparkling water, like LaCroix, is NOT subjected to the sweetened beverage tax. Don’t believe otherwise.”

As the nation’s third most-populous city with over 2.7 million residents, Chicago easily vaults to the top of the list of largest metropolitan areas to adopt a tax on sweetened beverages, joining the likes of Philadelphia, San Francisco, Oakland, Seattle and Berkeley, Calif. Cook County, which has a population of over 5 million, according to data from the U.S. Census Bureau, has actually had a 3 percent retail tax on soft drinks, defined as sweetened beverages containing less than 50 percent fruit juice, since 1993.

On a larger scale, last week’s ruling is another sign that the momentum for legislative measures taxing sugary drinks is not slowing down. Outside of Sante Fe, N.M., which rejected a soda tax proposal in a special election in May, most recent pro-tax campaigns have been successful.

“It’s clearly a win for public health, and it raises the question of when is industry finally going to give up its opposition to these policies,” said Jim O’Hara, director of health promotion policy at the Center for Science in the Public Interest in Washington, D.C. In his role, O’Hara works with various anti-sugar campaign efforts to offer resources and support, including in Cook County. “They fight them politically when the campaigns are underway and then after they lose they continue their opposition through litigation. So far their track record in that litigation of opposing successful tax efforts is pretty dismal.”

As for the possibility of finding any common ground with the beverage industry on the grounds of taxes on sugar-sweetened drinks, O’Hara suggested the two sides are likely intractable at this point.

“We’ve talked to the companies over the years and the trade groups and we’ve made clear that this is the appropriate public health policy and obviously they disagree with us,” he said.

As for one of the most frequent criticisms of soda taxes — namely that they cause job losses and hurt the local economy — O’Hara noted that a relatively strong body of research exists disputing that notion. A study published in the American Journal of Public Health in 2014 simulated the macroeconomic impact of a tax on sugary drinks in Philadelphia and Illinois and concluded that employment would rise slightly in both cases. In Berkeley, statistics showed a 7.2 percent increase in jobs across the food sector and a 15 percent rise in food sector revenue in the two years since the city adopted a tax on sugar sweetened beverages.

“In 2014, when Berkeley passed the first tax, we said that the tide of history was on the side of the [sugar tax] advocates and there would be more sugary drink taxes,” said O’Hara. “This is not what the industry tried to caricature it three years ago as some far out idea that would not be embraced by middle America. It has been.”