Study: Bag Taxes Are Bad Tax Policy

Published July 19, 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.

“Bag Taxes Disappoint in Debut” gives as an example the 5-cent bag tax in Washington, DC, which went into effect January 1. The tax has resulted in much less bag usage by customers and lower revenues than projected. The report also notes there are plans to transfer bag tax revenue from a river cleanup fund to the city’s general fund.

Bag tax legislation is pending in Alaska, California, Connecticut, Hawaii, Maine, Massachusetts, Nevada, New Jersey, New York, Rhode Island, Texas, Vermont, and Virginia.

Revenue Far Below Projections
Originally labeled a “fee” for the Anacostia River Cleanup Fund, the bag tax in Washington, DC raised approximately $150,000 in its first month, according to a DC 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, DC 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.

The Baltimore City Council proposed a 25-cent bag tax earlier this year but instead settled on a compromise requiring most stores to stop offering plastic bags unless a customer asks for one. At the state level, a 5-cent bag tax failed to advance out of the Maryland Senate’s Finance Committee.

Baltimore Mayor’s Opposition
Stephanie Rawlings-Blake (D), former president of the Baltimore City Council and now the city’s mayor, announced her opposition to the bag tax when it was proposed.

“The unemployment rate in Baltimore has nearly doubled since the start of 2008 as a result of the global economic crisis,” Rawlings-Blake said in a statement. “Food and energy prices are rising. Now is not the time to add taxes and fees on family grocery bills. This proposal is out-of-touch with the needs and struggles of our citizens.”

Bag tax proposals also failed in Seattle (20 cents) and at the state level in Colorado (6 cents) in 2009.

Taxes, Not Fees
Colorado Sen. Shawn Mitchell (R), who helped defeat the state’s bag tax legislation, said the bill was “emblematic of the problems that result from trying to translate good intentions into government control.”

“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.'”

Environmental Benefits Doubted
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, according to the Tax Foundation report.

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, the report notes.

Natasha Altamirano ([email protected]) is manager of media relations for the Tax Foundation, a nonprofit, nonpartisan research and educational organization that monitors fiscal policy at the federal, state and local levels. Tax Foundation Research Fellow Xander Stephenson contributed to this report.

Internet Info

Tax Foundation Fiscal Fact No. 224, “Bag Taxes Disappointing in Debut”: