Notes From Babel

D.C.’s Nickel Tax on Plastic Bags

with 6 comments

Incidentally, this is a "wallpaper." Who would use a photo of a trash-filled river as a wallpaper?

David Godow at Reason Foundation reports on D.C.’s sin tax on plastic bags.  The 5 cent levy on bags was designed to raise $3.5 million to clean up the Anacostia River.  However, Godow scoffs, the levy yielded much less than that mark, apparently due to the tax working too well and persuading consumers to avoid the bags and the tax:

This highlights the silliness of the dual mandate most sin tax’s experience: both reducing consumption and raising revenue. Clearly, success in one of these objectives necessarily means less success on the other. Now, D.C.’s bag tax wasn’t implemented specifically as a revenue raiser; tax proponents can still claim victory due to the potential positive effects the levy has had on pollution in D.C. waters.

I don’t see why this is “silly.”  Obviously, the tax was going to have both the effect of raising some revenue and discouraging the use of plastic bags.  That people were apparently easily nudged from their use of plastic bags suggests they were probably already poised to kick the habit.  So the tax did better than expected in the externality-reducing category, and accordingly worse in the revenue-raising category.  So what?

I really don’t have a problem with this kind of modest tax to try to identify and reduce externalities.  I do harbor a presumption against paternalistic legislation, but, unlike some libertarians, it’s a rebuttable presumption.  I suppose I feel that there is really little reason to keep on using plastic bags, but that because the practice is entrenched, it might take something like a modest tax to help break the habit.  Again, I don’t prefer to use the government for this sort of thing, but then maybe I’m also a little depressed about stories like the Great Pacific Garbage Patch and how we have no ideas to fix it.  If it takes a couple of nickels to help us identify one of the externalities that contributes to such problems, I will at the very least happily withhold any objections.

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Written by Tim Kowal

March 17, 2011 at 2:12 am

6 Responses

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  1. Tax policy has always been used to either incentivize or discourage activities that we find good or bad. We allow a deduction for mortgage interest because we want to encourage people to purchase homes (for societal and economic reasons). We allow people to deduct charitiable contributions because society feels such activities are collectively beneficial. We tax cigarettes and alcohol because they are both bad for our collective health and create externalities in the form of medical cost. We hope the tax will discourage use but if not, the tax can raise funds to be used to deal with the users’ medical costs that are involuntarily imposed on the rest of us.

    I am all for smart tax policy, such as taxing gasoline heavily to both encourage conservation and provide funds to pay for the transition to other, less harmful forms of transportation. Instead, we provide subsidies for big oil to drill, even when the price of oil is at all-time highs. That is not smart tax policy, that is textbook rent seeking.

    We should subsidize those things that are good and tax those that are bad. The trick is getting people to decide on which activity is which.

    Tom Vogele

    March 17, 2011 at 8:37 am

    • Not to be contrarian, but I disagree that the determination whether tax policy is “good” or “bad” is whether it is “smart.” Smartness in tax policy doesn’t give us any indication whether it has any correlation with freedom, which ought to be the touchstone. Instead, the reason I probably favor the D.C. bag tax is because it attempts to address an externality that is otherwise unaccounted for by any of the individual and corporations who produce, dispense, consume, and dispose of those bags. Coming even to a rough approximation of the value of that externality forces those actors to account for it rather than offload it to the public. Thus, in some way, the tax actually fosters more informed market action. This is quite unlike other “smart” tax policies, like the mortgage interest deduction, for example.

      Tim Kowal

      March 17, 2011 at 8:48 am

  2. I always find it interesting when people promote tax policy as a way to curb behavior (i.e., individual choice). As if government is the proper institution to be the arbiter of which activities are “good” and which are “bad.” It is curious that we have ceded this function to a group of individuals that almost every major poll finds is distrusted and/or reviled by a large majority of citizens. That many, left and right, believe is in the pocket of “special interests.” Yet adherents of both of the major parties agree this is how it should be so long as the leviathan that is government is acting to shape society in the image they desire. So they accept the premise that the monster capable of suppressing all of our liberties shouldn’t be destroyed but, rather, should be restrained and trained to run roughshod only over those activities those in power at the time deem are “bad.” Of course, if the right were to gain enough power to place a hefty tax on abortion that would make it cost prohibitive because it wanted fewer abortions then the left would be up in arms about wrongful government oppression of women’s rights. Conversely, if government decided that donations made to churches and other religious institutions were not tax exempt, while similar donations made to secular institutions were, the right would bemoan the government discriminating against religion. Yet, not a peep is made when vice taxes similarly impede on our individual choices, or impose targeted taxes on goods or services that people wish to purchase but which government deems harmful. Alas, it seems neither party is willing to give up their chance at controlling the caged monster to do their bidding, even if it means the other side will eventually get its chance to do the same.

    Ted

    March 20, 2011 at 10:42 am

  3. As a follow up to the point about taxing goods and services to cover the costs of externalities, I would caution that these can eventually become morality taxes. In the case of cigarettes, the government first demonized the tobacco industry to extract billions of dollars in settlements during the tobacco litigations two decades ago, monies that were supposed to pay for the alleged increased costs to society caused by smoking. However, since that time, governments have continually raised taxes on “evil” tobacco products to boost government revenues in order to pay for non-smoking related projects. And this was all done with the enthusiastic support of a public conditioned to think smokers deserve to have their money taken from them for indulging in such a disgusting habit.

    I’m not saying that there will definitely be additional taxes levied on those opting for plastic bags that will go to pay for projects having nothing to do with the societal costs associated with plastic consumption. Just that we should be ever vigilant that the externalities taxes of today not subsequently morph into the morality taxes of tomorrow.

    Ted

    March 20, 2011 at 11:02 am

    • That’s a fair enough point. I tend to think morals legislation is legitimate, but certainly not so much as externality-controlling legislation. So I agree the presumption of legitimacy is much stronger to the extent a law falls under the latter description and, at the very least, a careful reevaluation is necessary when it is no longer about controlling externalities but punishing vices.

      Tim Kowal

      March 20, 2011 at 11:16 am

  4. As a ‘weak’ libertarian, I agree with your reasoning on this one, Tim. While taxing wouldn’t be my first instinct, it seems the tax produced a desired outcome rather efficiently.

    Gregory Newman

    March 22, 2011 at 10:24 am


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