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That Chicago soda tax was an even bigger hot mess than predicted

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Back in December of last year, over vocal protests from residents, Cook County, Illinois (which is primarily composed of Chicago) adopted a policy similar to many other cash strapped, liberal municipalities. They decided to save the people from themselves and simultaneously put a bunch of money in the city’s nearly empty coffers by imposing a sin tax on soda and other “sweetened beverages.” Their argument was that soda is unhealthy so people would drink less of it if it cost more, and if they managed to keep the the bankruptcy lawyers away from the door for a while longer, all the better!

We’ve written about these sin taxes of various sorts at length here and studied how well they’ve worked out for others. (Spoiler alert: they don’t.) What Cook County was attempting looked to be fraught with problems from the get-go and now the drama is playing out in a hot mess beyond even what I’d imagined. So poorly thought out was this plan that the county seems to be breaking the law no matter how they try to implement it. (CBS Local)

The U.S. Dept. of Agriculture has warned Illinois government if Cook County continues to collect sweetened beverage taxes from food stamp recipients, it could lose millions in funding.

USDA is taking a hard line when assessing what constitutes a violation.

Say you’re a SNAP client, you buy a soda, you are charged the tax but you get an immediate refund. You may think no harm, no foul, but Illinois Retail Merchants Association Vice President and General Counsel Tanya Triche Dawood disagrees.

“It is absolutely a violation of our (Illinois) SNAP contract,” she tells WBBM’s Bob Roberts. “The USDA has been clear about that since Day 1. We’ve been clear about it since Day 1.”

Does charging someone a tax on something and then immediately turning around and handing them the money back sound a bit warped to you? Same here, but that was only the latest attempted solution at putting this soda tax in place. When it was first moved into action, a judge blocked it for being unequally applied. After some changes managed to sort out that problem, they realized that where and when the tax was applied was also going to be a problem. In June, Reason Magazine saw trouble coming and broken down why the second version wasn’t going to work either.

[Cook County Commission President Toni] Preckwinkle had projected the soda tax would generate $74 million in its first year. Combined with a projected $80 million in cost reductions, Preckwinkle was confident the county could eliminate its $174 million budget deficit.

County officials, however, had initially planned to tax distributors, who would pass along the cost in the final sale price of a sweetened beverage. Last Thursday they cancelled that plan when the Cook County Revenue Department pointed out the sales price would still be subject to a sales tax.

A tax on a tax is illegal in Illinois.

When the county made the soda tax a line item at the point of sale it ran afoul of the Department of Agriculture, which advised it was against federal law to tax transactions paid for with benefits from its Supplemental Nutritional Assistance Program (SNAP).

You can see how they were running out of options. The sugary drinks would still be taxed at the point of sale, so jamming the tax down the throats of the retailers only to have it taxed again at the register was a tax on a tax. That was going to be shut down also. That meant going back to applying the tax to the consumer, but anyone on Food Stamps (SNAP recipients) could not, by law, be taxed for bottled beverages. (That was part of the original problem with the tax being unevenly applied.) So in a desperate, last bid measure to fix the mess they created themselves, they decided to tax the SNAP recipients purchasing soda but then immediately turn around and refund the money to them.

I’ll admit that the feds seems to be taking kind of a hard line here. It’s not as if the SNAP recipients are actually paying the tax, but being charged that fee – even just for a few seconds – is a violation of the law, so now the Department of Agriculture is threatening to cut off all of the county’s SNAP money. It’s a comedy of errors which needs some Benny Hill music in the background.

Unaddressed in this ongoing debate is the flawed nature of the soda tax itself. This was never about making people healthier. If the County Commission honestly believes that soda is bad for people (Mika Brzezinski once declared it to be “poison”) then why not just ban it entirely? Because the tax, like all other sin taxes, is in place to make it look like you are “punishing” people for socially unacceptable behavior while filling up the county coffers with their shopping dollars.

Let’s face it… government at all levels claims that smoking is bad and people shouldn’t smoke. (Hard to argue, but… free choice, personal responsibility and all that.) In response, they tax cigarettes to the point where a less than $3.50 pack of Marlboro smokes (what they actually cost) can run you as much as $15 in New York City. The rest is all taxes. And if everyone in the country suddenly stopped smoking tomorrow a lot of these place would go broke almost immediately.

In the meantime, the comedy of errors rolls on in Cook County. Break out the popcorn and we’ll watch how it plays out. But you should be aware that Chicago also taxes popcorn outrageously.

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