Chicago Bottled Water Tax and Its Low Yield: You Can't Blame the Weather

Introduction

The City of Chicago expected to raise $10.5 million or $875,000/month with the bottled water tax (Spielman 2008). January collections were $554,000, 36.7% short of expected revenue. Wendy Abrams, a spokesperson for the City's budget office blamed the low collections on the weather. She said, "Since January is generally one of the coldest months of the winter, we don't think January collections are a strong indicator of potential revenue for the remainder of the year." Evaluation of the bottled water tax according to the standards of economic neutrality, equity, transparency and compliance suggests that the City of Chicago's faith in the tax is misplaced and that poor January receipts foreshadow low collections for the rest of the fiscal year.

Background

The City of Chicago enacted the bottled water tax on January 1, 2008. It was the brainchild of Alderman George Cardenes, who originally proposed a tax of $.25/bottle (Prante 2007). The City considered a tax of $.10 before deciding on $.05 (Keen 2007). The tax applies to all bottles of water regardless of size, and the tax applies to each bottle when water is sold in a pack (Chicago Department of Revenue). The tax does not apply to water coolers provided by home or business water delivery services. Drinks with carbonation, flavoring, caffeine or nutritional additives are exempt as are bottled water sold on interstate carriers. Due to federal regulations, bottled water purchased with food stamps is also exempt.