Chlorine levels are set to protect the whole network: every mile of pipe, every break and repair, every house out to the last tap on the line. The number is picked so water arrives safe at the far end of the system. Nobody picked it for taste, for your skin, or for your morning coffee.
Food dye is a fair comparison. It's approved, it's in half the grocery store, and plenty of families skip it anyway. Given a choice, people take the cleaner version of the things they use every day. Water never used to offer that choice. Now it does.