On January 1, the District of Columbia began imposing a a 5-cent “fee” on disposable shopping bags.
Is this a pollution tax, as its backers claim, or just another sales tax?
The District of Columbia’s June 2009 decision to impose a new 5-cent tax on disposable shopping bags went into force on January 1, 2010. At the time, Washington Post staff writers Tim Craig and Bill Turque reported that the “Anacostia River Cleanup and Protection Act” was “designed to limit pollution of the Anacostia River and its tributaries.” In fact, the new law has no such design feature. All disposable shopping bags were subject to the tax, not just those that otherwise would be dumped into the Anacostia.
Washington Examiner staff writer Michael Neibauer reported that the District’s chief financial officer predicted an 80% reduction in bag usage over four years, plus $9.5 million in tax revenue. For this prediction to be true, the number of bags taxed during that period must be ($9.5 million / $0.04/bag =) 237.5 million, which implies that consumers forswear another ([237.5 million / 20%] – 237.5 million =) 950 million bags to avoid the tax. How the DC CFO estimated these figures is not known; no written report is available on the District’s web site.
When the tax was approved, DC Council member Jack Evans implied that it had a broader purpose, paraphrased by Craig and Turque as “a ‘first step’ toward the long-term goal of severely limiting plastic bags and bottles nationwide.”It’s not clear how DC’s action would set the stage for these nationwide actions, but Democratic representatives in Maryland and Virginia appear interested in extending DC’s tax region-wide. Washington Examiner reporter David Sherfinski quotes Virginia Democrat Del. Adam Ebbin also claiming that the purpose of such a tax is to remedy pollution:
“The environmental clean-up cost is the primary reason why we’re introducing this in Virginia.”
Ebbin undercuts his own claim by noting that the tax would be voluntary. Shoppers can bring their own bags to the market, in which case they avoid paying the tax:
Ebbin noted that the proposal would represent a consumer choice, since shoppers can decide whether to invest in the water fund, adding that there is a “rising consumer interest in protecting the environment.”
If environmental cleanup is a bona fide public good, voluntary taxes are inappropriate. Voluntary taxes enable many who benefit to escape having to pay their fair share. However, if the real purpose of the tax is to cover the external social costs of improper disposal of shopping bags, a deposit-refund system is the theoretically appropriate economic incentive. An efficiently designed deposit-refund system would charge up front an amount that equals the marginal damage to the environment of improper disposal (the deposit), then pay back this amount when the item is disposed properly (the refund).
Deposit-refund systems are used for such items as automotive batteries and beverage containers, though the operate with a high degree of inefficiency. Deposits are set far above the environmental cost of improper disposal. (An efficient deposit-refund system is impossible to design for disposable shopping bags, virtually all of which are disposed in household trash and thus create no environmental harm. The transactions cost of refunding deposits would exceed the environmental costs of improper disposal.)
Voluntary taxes like DC’s shopping bag tax often have conflicted motives. They are said to be intended to change behavior and raise government revenue. These goals are incompatible. If everyone changes behavior, tax revenue drops to zero. Revenue is maximized, however, when no one at all changes behavior. One can get a pretty clear idea which goal dominates by observing the level of the tax and what people have to do to avoid paying it.
A good analogy is Virginia’s 2007 attempt to impose a tax on “bad drivers” (blogged on here, here, here, and here). The Commonwealth did not inform drivers about the tax, which is obviously essential if behavioral change is the primary objective. Moreover, the traffic infractions selected for “voluntary” taxation — vehicular manslaughter, second and subsequent DUIs, maiming while DUI, and car theft, for example — were not the kinds normally deterred by financial penalties ranging from a few hundred to a thousand dollars.
Virginia’s “voluntary” tax on “bad drivers” was primarily intended to raise revenue. However, because it was marketed as something to enhance public safety, despite its inability to do so, there was a significant backlash leading to the law’s repeal. DC’s shopping bag tax is likewise promoted for a purpose it cannot achieve without vastly greater amounts of money — in this case, the cleanup of the Anacostia River.
We’ll be watching to see whether there is a backlash to the DC shopping bag tax. The tax is small enough that it might not generate much controversy. However, the tax will be a larger burden on DC residents who live in Southeast DC (near the Anacostia River) than those in Jack Evans’ downtown and Northwest district (see Ward map). Indeed, it’s not clear how much of the proceeds from the tax will actually be spent on Anacostia River cleanup.