It’s an unfortunate truth that many government bodies are poor architects when it comes to designing and executing new laws and policies. But few botched government initiatives can compare with the Cook County soda tax.
With the vow of making residents healthier while bringing in much-needed revenue to the cash-strapped county, Cook County’s soda tax specifies sugary drinks that it taxes at a penny an ounce.
But despite soda-haters’ and politicians’ high hopes, the tax jeopardized millions in federal food stamp aid dollars to the state and has resulted in multiple lawsuits against the county itself and private retail chains. The soda tax was sold as a health initiative, but after being revealed as a poorly designed tax grab has caused a PR nightmare for the county.
Regardless of how someone feels about whether soda and sugary drinks should be taxed at a higher rate than other goods, Cook County’s soda tax has been an abject failure. This tax should serve as a cautionary tale for how not to write and implement government policy—especially such a far-reaching and controversial policy.
How not to write a tax
The Cook County soda tax adds a penny an ounce for the “retail sale of all sweetened beverages in Cook County.” Seems simple enough, right?
But when the Illinois Retail Merchants Association (IRMA) filed a lawsuit challenging the constitutionality of Cook County’s soda tax, one of their main arguments was that it was so poorly written that it was hard for retail stores and customers to know what was taxed and how any problems or potential refunds of the tax would be settled.
The tax has myriad exclusions, including:
- 100% natural fruit/vegetable juice, syrup and powder with no added sweetener
- Milk, soy, rice or similar milk substitutes that are the primary ingredient (more than 50%)
- Unsweetened drinks to which a purchaser can add, or can request that a retailer add, sugar, at the point of sale
- Infant formula
- Beverages for medical use
- Weight reduction/therapeutic nutritional meal replacements
- Any syrup or powder that the consumer himself or herself combines with other ingredients to create a beverage
Also, some drinks that are made by a bartender or coffee barista are exempt from the tax while the same drink would be taxed if bought in a bottle or can. Starbucks Frappuccino in a bottle = taxed, Starbucks Frappuccino made by a barista = not taxed. Having so many exemptions and caveats to what is taxed and what is exempt has become a nightmare for restaurants and retail stores.
One of the main reasons that Judge Daniel Kubasiak issued a temporary restraining order on the tax was because if a beverage was taxed mistakenly by a restaurant or store, the county set up no adequate system for repaying customers who overpaid for their drink.
Additionally, because Cook County failed to ensure that any purchase made by Supplemental Nutrition Assistance Program (SNAP) benefits would not be taxed (SNAP purchases are exempt from all state and local sales taxes), the U.S. Department of Agriculture’s Food and Nutrition Service office threatened to withhold federal funds for food stamps for the entire state.
After the USDA’s warning, Cook County avoided causing the state to lose federal funds for food stamps by prohibiting refunds for any mistakenly charged taxes on SNAP purchases. The county then made retailers responsible for finding a way not to charge the tax on any food stamp purchases. Critics of the county’s response said the county’s response to the problem was to “essentially tell retailers to figure it out themselves.”
The Illinois Liquor Control Commission has also notified Cook County that the soda tax could potentially be violating Illinois liquor laws.
When a tax that was sold as a policy to improve the health of Cook County residents jeopardizes $87 million in money for low-income residents and bequeaths a comical number of legal challenges from trade groups, private citizens and other government agencies, it’s a clear sign that it’s a poorly written policy.
How not to enforce a tax
Cook County passed the controversial soda tax with a tie-breaking vote from Cook County Board President Toni Preckwinkle. After the tax passed, IRMA sued the county, citing many procedural and structural problems with the tax—including issues with the tax’s constitutionality.
While the case was being argued in court, Judge Kubasiak issued a temporary restraining order for the tax’s implementation that lasted a month.
Not missing an opportunity to create a crisis, President Preckwinkle announced that Cook County would begin laying off more than 900 county employees due to the missed revenue from the delay in the tax.
Shortly after Cook County began handing out pink slips, Judge Kubasiak lifted the restraining order for the tax and ruled in favor of Cook County, stating that the tax was constitutional. But despite winning their case in court, President Preckwinkle attempted to sue IRMA for $17 million in “damages,” punishing IRMA for having the audacity to challenge the tax in court as well as sending a message to anyone else who might want to exercise their right against a potentially unconstitutional tax.
A government body attempting to punish a private organization by suing them for millions is troubling on many levels. An important aspect of our democracy is a person’s ability to challenge a potentially unconstitutional law—that right cannot be taken away simply because it reveals an elected official’s bad political move.
How not to sell a tax
A running theme of the many lawsuits and challenges that have been filed against Cook County because of the soda tax is the fact that the county was warned about the problems with how the tax was written and the procedures in place for enforcing the tax.
When the USDA sent their memo to the state detailing the numerous problems with the county’s soda tax, they revealed that they had warned Cook County about all these problems in June—before the tax was enacted in the first place.
Also, in IRMA’s lawsuit against Cook County, it was revealed that IRMA also had notified Cook County about the many problems of the tax before it was implemented.
A tax that is so badly written that it jeopardizes federal aid funds and is challenged with numerous lawsuits is a failed program. But a government body that received warnings about the many problems with the tax—and did nothing—is a failed system.
Despite the litany of problems with the tax, President Preckwinkle has defended the soda tax at every turn and has scoffed at any attempt (including by members of her own party) to repeal it.
Whether the many failings of the soda tax were negligence, incompetence or a simple disregard for responsible and responsive government—it is unacceptable.
It is a government’s responsibility to pass affordable budgets and ensure that the tax revenues to pay for that budget are being charged reasonably, fairly and effectively. But it is also a government’s responsibility to ensure that every tax is written correctly and within the law and is implemented only after a reasonable analysis and review has been completed.
Whatever the motive for the soda tax, Cook County failed at almost every turn to enact a legal, fair and reasonable tax. Then when faced with the realities of the many problems, the county doubled down on its failed endeavor and tried to threaten any dissenters with a multi-million-dollar lawsuit.
Cook County should repeal the soda tax and go back to the drawing board to balance its budget. Continuing to fight for such a glaring failure of a tax would only make a bad problem worse.