Why cigarette tax hike will cost Chicago
By Ken Patel November 5, 2013 5:12PM
Updated: December 7, 2013 6:15AM
Unintended consequences. That is the theme that runs throughout the proposal for a 75-cent-per-pack increase in the cigarette sales tax to help balance the City of Chicago’s challenging budget.
Our members own and operate 7-Eleven stores across Chicagoland — some of their small businesses are located within blocks of City Hall, others serve customers in the shadows of the Loop’s alabaster skyscrapers, and hundreds more are dotted across Chicago’s working class neighborhoods.
These small business owners are far from corporate executives. Most work nearly every day, and many use public transportation to arrive early every morning. Our valued employees, our many vendors, and hundreds of regular customers are the folks we interact with daily — they are a diverse group of hardworking Chicagoans just like us. Most Chicagoans can identify with our struggle when taxes are raised; it is people like us who are too often the ones who shoulder the unintended consequences set by policy makers who do not seem to walk in our shoes.
Even though our stores have diversified our offerings into many fresh foods, we still rely on traffic through our front door from customers patronizing 7-Eleven to purchase cigarettes. But looming as an imminent threat to our thin margins, this proposal would raise Chicago’s cigarette tax to $7.42 per pack, the highest in the nation. We will certainly lose customers who know they can buy far cheaper cigarettes beyond the city limits or even beyond the state line. The cigarette tax in Indiana is only 99 cents per pack, making that short drive an attractive option for many.
Our point is that the surge of cigarette customers leaving Chicago will create a negative revenue result for Chicago taxpayers — far from the $10 million budget windfall being hoped for.
Beyond the creation of sluggish cigarette sales, understand that when customers make their purchases, they buy other items too, all of which get taxed at Chicago’s 9.25 percent sales tax rate. At 7-Eleven, the assortment of soft drinks, snacks and other items purchased along with cigarettes totals $5.35 per customer on average. For an even larger impact, imagine the revenue produced by big-box stores that certainly must see much higher additional average purchases added to their cigarette sales.
When all the missed revenue generated by sales beyond cigarettes are totaled by multiplying the losses by Chicago’s 9.25 percent tax rate, Chicago taxpayers will join us, small business owners, as victims of the unintended consequences. We will lose thousands of dollars individually, but taxpayers stand to lose millions.
Then there are the neighborhoods — blocks full of law-abiding, decent people who simply want Chicago’s crime to stop. But by increasing the profit margin between legal and illegal cigarettes, the gangs and unscrupulous dealers who thrive in our city with their cottage industries will undoubtedly expand. The sale of black-market cigarettes that were purchased elsewhere by paying little if any sales tax is a criminal’s dream, and the problem of street-corner and back-alley sales will only be exacerbated.
The head investigator for the Illinois Department of Revenue said recently that cigarette smuggling in Illinois rivals illegal drug-smuggling and is just as lucrative, but with much lower penalties, making cigarette sales even more appealing to many gangs. Chicago police officers are already outmanned and outgunned by the lawless; this will only make matters worse.
Kick-starting our economy starts with jobs, and more jobs lead to less crime. A tax that drives jobs out of the city of Chicago and encourages more crime does not make sense to me. And it should not make sense to Chicago’s city council members. We understand the challenges Mayor Emanuel is facing, but another tax on local businesses and their customers is not the right approach.
Do not create circumstances that bring unintended consequences.
Ken Patel is vice president of the 7-Eleven Franchise Owners Association of Chicagoland.