Martin Austermuhle
Yesterday afternoon Patrick Gleason, the Director of State Affairs at Americans for Tax Reform, published an editorial in the National Review inveighing against D.C.’s five-cent bag fee. Citing an analysis of the bag fee’s impact on D.C. that his organization commissioned, Gleason said the fee wasn’t only a failure, but was damaging the city’s economy.
We read both Gleason’s editorial and the underlying report on which it is based and picked apart a few of the arguments.
According to the D.C. Office of the Chief Financial Officer (OCFO), the bag tax has raised only $975,000 in the current fiscal year, well short of official projections. In its first year the bag tax only generated $1.5 million, as opposed to the $3.6 million predicted by D.C. officials. This shortfall reflects the fact that shoppers altered their behavior to avoid the tax at an even greater rate than District officials expected and that business-compliance estimates were overoptimistic.
Let’s start with the basics: it’s not a tax, but rather a fee. You can’t opt out of taxes, but you can easily opt out of paying the five cents for every bag you use by not using them. (Update: there’s an interesting discussion in the comments about whether this is a fee or a tax. After thinking it through, I’m willing to concede that yeah, it might be a tax. Either way, keep reading!)
Now, the main point. It’s not often that the government falling short is a good thing. But when it comes to the bag fee, that’s exactly the case. When the law was passed imposing the fee, it was written as a two-edged sword: people could either opt to stop using plastic bags (which means less trash in local rivers) or pay a fee for each bag, the proceeds of which would go to cleaning up the rivers (which means less trash in local rivers).
In that sense, that the city is taking in less than it hoped for means that fewer people are using plastic bags—which is the whole point.
It is true that business compliance is a problem, though, and could affect both the estimates as to how many bags are being used and how much money the city is taking in for them. Last year, some 38 percent of retailers were found not to be charging five cents for bags. That’s a problem, and one D.C. has struggled to address: to my knowledge, there’s only one compliance officer for the whole city.
Under more realistic assumptions, BHI found that D.C. bag usage declined by 67 percent, as opposed to the 80 percent drop expected by bag-tax proponents. D.C.’s overestimation of compliance accounts for why bag usage is higher than the government expected, but revenue from the tax continues to fall short of projections.
OK, so the estimates of how usage of plastic bags would decline were off. But let’s consider what even a conservative opponent of the bag fee is admitting: the use of plastic bags declined by 67 percent. If Gleason had his way, though, the program wouldn’t even exist, meaning that plastic usage could have declined a whopping…0 percent. If our 67 percent is a failure, what’s his 0 percent?
Even more noteworthy is the study’s finding that a claw-back in bag usage can be expected moving forward and, as a result, D.C. residents will be paying more in bag taxes than the public or government is anticipating. This has to do with something called the “rebound effect,” which has been documented in a number of countries that have imposed bag taxes, such as Ireland, Italy, and South Africa.
This is interesting—and largely true, I think. As of recent, I’ve found myself slipping more and more often on bringing my own bags. But most of the places I go still charge me the nickel per bag, so for every time I forget, I’m still paying into the fund that will be used to keep the Anacostia River clean. That’s a good thing. If the rebound effect actually happens, we may see an increase in the use of plastic bags—but we’ll likely also see an increase in five-cent contributions to the Anacostia River cleanup fund.
The rebound effect in D.C., according to the BHI report, will yield a 57 percent increase in bag usage by 2016, which will cost D.C. taxpayers $5.73 million and lead to a number of adverse economic consequences. According to the report, “Employment losses will rise to 136 net local jobs from 101 in FY 2011, and aggregate real disposable income will fall further by $8.08 million from $5.8 million in FY 2011. Investment declines will increase to $1.58 million from $600 thousand in FY 2011.”
So over the next four years, the report argues that we can expect bag use to increase 57 percent. Of course, let’s not forget one thing—that’s relative to the 67 percent decrease that we’ve already seen. The report even admits as much when it cites Ireland as an example of the rebound effect. When Ireland implemented a bag fee in 2002, per capita bag use was at 328 bags. After the bag fee went into effect, it dropped to 21 bags per person. Even with the rebound effect, it only jumped to 33 bags per person. Sure, 33 is higher than 21—but it’s also stay way lower than 328.
The report adds that since bag usage will rebound, D.C. legislators will have to raise the fee to counteract the increases. But even in the worst-case scenario, the report admits, the fee would only have to rise to between 6.3 cents to 7.99 cents per bag. That’s not very dramatic a jump. That also assumes that residents won’t simply seek the available alternative: reusable bags.
As for the effects on the economy, well, they’re mostly premised on shoppers going outside the city because they want to save five cents on every plastic bag. They can’t go to Montgomery County anymore—it recently got a bag tax—but they can try Prince George’s County or Northern Virginia. (Prince George’s only fell a vote short of its own bag tax this year, so one might be in the offing next year.)
That argument seems to fall apart when you consider that the cost of driving out of the city would likely outweigh the savings on not having to pay the fee. If smokers didn’t bail on D.C. after the city imposed a smoking ban in local bars and restaurants, will residents only do their shopping in the suburbs to avoid a five-cent fee that they can avoid by bringing a reusable bag? Sure, some will—but probably not most.
The D.C. bag tax was a terrible idea to begin with. It has been bad for small businesses and low-income residents in particular. The bag tax also has nothing to do with improving the environment and is really another veiled cash grab by the notoriously corrupt and economically inept D.C. City Council. It should be repealed immediately, before more damage is done.
Gleason doesn’t show how the bag tax has been bad for small businesses or low-income residents, much less does he even try to understand that yes, maybe it has been good for the environment. Prior to its imposition, some 21 percent of all trash scooped out of the Anacostia was plastic bags. Within five months of the tax going into effect, according to bag fee proponent Councilmember Tommy Wells (D-Ward 6), litter in the river was cut by 60 percent.
As for a “veiled cash grab”—oh please. Our legislators are plenty good at getting money out of us when they need to, and five cents here and there (which you don’t even have to pay if you bring your own bag) isn’t exactly a master stroke of unfair municipal taxation.
Patrick Gleason is Director of State Affairs at Americans for Tax Reform. Gleason is also a resident of D.C. who avoids paying the bag tax at all costs and would never rat out a business owner for non-compliance.
If Gleason avoids paying the bag fee at all costs, that means he’s either not using any bags at all or using the reusable types—which is the whole point. Alternatively, he could only be shopping at retailers that fail to charge the fee. If that’s the case, I’m curious where he does his grocery shopping. Unless he’s shopping exclusively at corner markets and bodegas, he’s kinda screwed—those mainstream supermarkets are going to charge the fee.
