BAG TAXES ARE BAD TAX POLICY

July 28, 2010

At least 13 states are considering enacting taxes on plastic and paper bags used at grocery stores and carryout restaurants, but a Tax Foundation report shows the environmental benefits of the tax are often exaggerated and the tax becomes another general revenue grab by public officials, says Natasha Altamirano, manager of media relations for the Tax Foundation. 

According to the Tax Foundation report: 

  • If designed as a tax meant to eliminate a bad side effect (in this case litter and other environmental problems), a bag tax may be considered successful if it achieves some environmental goals while still leaving bags affordable for the people who need them most.
  • But the environmental goals set forth by public officials are often too ambitious to be achieved by a bag tax alone.
  • Moreover, although customers might give up disposable plastic or paper bags from grocery stores and other retailers, they may instead purchase bags for household needs previously served by grocery bags -- such as trash liners or lunch bags -- which have the same chance of adverse environmental effects as grocery bags. 

Bag tax legislation is pending in Alaska, California, Connecticut, Hawaii, Maine, Massachusetts, Nevada, New Jersey, New York, Rhode Island, Texas, Vermont and Virginia.  In Washington, D.C., a bag tax was implemented at the beginning of 2010: 

  • Originally labeled a "fee" for the Anacostia River Cleanup Fund, the bag tax in Washington, D.C., raised approximately $150,000 in its first month, according to a D.C. Office of Tax and Revenue report.
  • That translates to taxes on approximately 3 million disposable bags, a far cry from the 22 million bags the city originally projected would be taxed each month.
  • Despite that revenue shortfall, D.C. Mayor Adrian Fenty (D) has proposed an intergovernmental transfer of the bag tax funds to pay for general city services not necessarily related to any environmental programs. 

"Taxes are charges to pay for general government services, while fees defray the cost of a service provided to a particular individual," said Tax Foundation tax counsel and director of state projects Joseph Henchman.  "Americans have historically scrutinized any charge with 'tax' in its name.  Fearful of being branded as a 'tax hiker,' politicians are reluctant to call anything a 'tax,' so they often incorrectly categorize these bag taxes as 'fees.'" 

Source: Natasha Altamirano, "Bag Taxes Are Bad Tax Policy," Heartland Institute, July 17, 2010.

 

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