Chicago’s impending bottled water tax has thrown the city into
an uproar. A group of politicians, including Congressman Jesse
Jackson Jr., staged their own version of the Boston Tea Party, by
pouring bottled water into the Chicago River. The Illinois Retail
Merchants Association, the Illinois Food Retailers Association, and
other groups are threatening to challenge the law in Cook County
Circuit Court after it goes into effect in the New Year. Retailers
on the city’s borders are stocking up on water in expectation of
higher sales.
The law is a pet project of Alderman George Cardenas. It’s
intended to raise revenue (about $10.5 million annually, by city
estimates), to discourage the use of environmentally harmful
plastic bottles, and also to address Cardenas’s ridiculous
obsession.
The Alderman blames the city water and sewer department’s $40
million budget shortfall on bottled water consumption, an
allegation that — pardon the pun — doesn’t hold water.
The 2007 water rates for Chicago and its suburbs is $1.33 per
1,000 gallons consumed; sewer rates are calculated at 83 percent of
the water bill, or $1.10 per 1,000 gallons consumed. Chicago
consumers would need to consume an additional 16 billion gallons of
tap water a year to make up the budget shortfall — enough to fill
almost 25,000 Olympic-sized swimming pools.
As for the revenue estimates, they are also likely all wet.
While politicians recognize that raising the cost of bottled water
will discourage people from buying it, they anticipate a
continuous, if not expanding, revenue base from bottled water sales
in future years.
Thanks to existing loopholes, the bottled water tax won’t
collect a fraction of the money that the city expects. Under the
new law, Chicagoans would be charged 5 cents per bottle of still
water, but nothing for carbonated or fortified water, which are
considered soft drinks and thus not direct competitors of Lake
Michigan’s finest.
The state of Illinois’ Retailers’ Occupation Tax Act states that
“‘soft drinks’ means any complete, finished, ready-to-use,
non-alcoholic drink, whether carbonated or not, including but not
limited to soda water, cola, fruit juice, vegetable juice,
carbonated water, and all other preparations commonly known as soft
drinks of whatever kind or description that are contained in any
closed or sealed bottle, can, carton, or container, regardless of
size.”
Coffee, tea, still water, infant formula, milk or milk products
and drinks containing 50 percent or more natural fruit or vegetable
juice are exceptions. (Isn’t this beginning to sound like something
out of Dr. Strangelove?)
HOPEFULLY, THIS WON’T lead the city to tax “soft drinks” in the
future, but — and, again, apologies for the pun — don’t hold your
breath. After all, there’s a lot of soda, fruit juice, and mineral
water sold every day. And if the city doesn’t ratchet up the soft
drinks tax now, there are a lot of non-soft drinks that are
vulnerable to taxation.
There’s not a lot of wiggle room for infant formula
alternatives, but if the city thinks you should be drinking tap
water, what’s to stop it from “encouraging” women to breast feed
rather than use formula? Or “encouraging” you to not drink so many
cups of coffee a day?
Mayor Daley’s 2008 budget says the bottled water tax “promotes
local water usage and encourages the consumption of high-quality
water from the City’s water system.” Unsurprisingly, the City has a
monopoly in this department — after all, there’s not a lot of
choice in the tap water market.
What’s going to happen to Chicagoans? In the short run, the tax
will probably look a lot like the foie gras ban — on the
books, but generally unenforced. In the long run, bottled water use
within city limits will likely decrease — possibly in favor of tap
water, but in many cases in favor of sugary soft drinks instead.
This doesn’t bode well for Chicago’s growing obesity problem, but
might benefit dentists and dieticians. Some people will buy low-tax
water outside city limits.
The real problem lies in the city’s mess of petty,
interest-driven taxes, penalties, and exemptions. Maintaining a tax
code with hundreds of variable tax rates for different goods
necessitates a bureaucracy to monitor these taxes — which is not
where the city’s money should be going.
If the city reformed the current tax code into a broad-based,
evenly applied sales tax, the tax rate could be lower, less
bureaucracy would be needed, and consumption patterns wouldn’t be
distorted by the tax code. It would also keep Chicagoans’ rights
from slowly trickling down the drain.
