Sugary drink tax would be a bitter pill to swallow

Austin Berg

Senior Writer

March 9, 2017
Illinois holds more than $66 million worth of stocks and bonds in PepsiCo, Coca Cola and Dr. Pepper Snapple alone.

If you know southern Illinois, you know Ski.

Made with real lemon juice, orange juice and pure cane sugar, Ski soda comes in a green glass bottle from a bygone era. It’s the flagship beverage of family-owned Excel Bottling Co. in Breese, Illinois.

Bill Meier runs the business. His grandfather, Edward “Lefty” Meier, bought the bottling plant in 1936 with reward money he earned for catching a bank robber.

Now, the state of Illinois may rob the Meier family of Lefty’s legacy.

Senate Bill 9, proposed as the Sugar-Sweetened Beverage Tax Act, would place a penny-per-ounce tax on bottled sugar-sweetened beverages, syrups or powders sold or offered for sale to a retailer for sale to a consumer. It could raise an estimated $560 million annually.

“It would dramatically affect our business,” Meier said. He employs 30 Illinoisans at his plant about 40 miles east of St. Louis, and says he would be forced to lay off one person for each 3 percent drop in soda sales.

It’s no wonder new numbers from Philadelphia are making Excel employees nervous. The city introduced a 1.5-cent-per-ounce sugary drink tax at the start of 2017 – nearly doubling the price of many items – and now local businesses are reporting severe beverage sales drops as high as 50 percent. That could mean 15 layoffs for Meier.

Thankfully, Excel is growing at a healthy clip. Rising demand for craft soda in the St. Louis market means they’ve run out of space and are gearing up to build a new distribution center. But it won’t be in the Land of Lincoln. Not if Illinois lawmakers pass the sugary drinks tax, according to Meier.

“We wouldn’t do it in Illinois. We’d put it in St. Louis,” he said. “Why would we keep our business in Illinois?”

Losing Ski to Missouri might not be the only way Illinois shoots itself in the foot with this new tax.

The state’s five pension systems are underfunded by $130 billion. And the debt is actually much worse than that if the state’s investments don’t hit their expected annual returns of 6.75 percent or higher. Problem is, some of those investments include soft drink companies that would see a decline in business under a statewide soda tax.

The most recent annual report from the Illinois State Board of Investment shows the state holds more than $66 million worth of stocks and bonds in PepsiCo, Coca Cola and Dr. Pepper Snapple alone.

Pepsi is set to lay off 80 to 100 distribution workers in Philadelphia, citing local beverage sales dropping 40 percent in the wake of the new soda tax.

“Our worst fears have been realized today,” said Philadelphia Teamsters union Secretary-Treasurer Danny Grace in a statement on those layoffs. “We pleaded with City Council members and our fellow union brothers and sisters in Philadelphia to stand with us against this outrageous tax, but to no avail. I hope they can live with themselves after knowing that their actions led to the devastation of an industry in the city and the loss of so many family-sustaining jobs.”

Gov. Bruce Rauner has refused to rule out such a tax as part of the budget deal. That’s disappointing.

Proponents of the sugary drink tax cite reduced soda consumption as the end-all-be-all argument as to why Illinois should start forcing businesses such as Excel across state lines.

They’re right about one thing: incentives matter. High taxes change how businesses and families make decisions. After all, Illinois is home to the worst out-migration to other states in the nation. The most common reason Illinoisans want to leave is taxation, according to polling from the Paul Simon Public Policy Institute.

But just because a tax hits soda sales doesn’t mean anyone is healthier.

In fact, sugary drink taxes have never been proven conclusively to cause a decrease in obesity. That’s because consumers often substitute spending on soda with spending on other sugary items.

It is known, however, that these taxes disproportionately affect poor and less-educated people. Gallup polling shows 45 percent of people making less than $30,000 a year consume regular, sugary soda. And, as incomes rise, consumption of regular soda decreases.

Illinois shouldn’t be balancing the budget with tax hikes on low-income residents, nor on beverage businesses doing their best to provide some sweetness in our often-depressing state.

Instead, lawmakers should go back to the drawing board and make spending reforms long lacking in Springfield. And grab a Ski while they’re at it.

 

 

image credit: Christian Gooden

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!