Are Litter Taxes Good Economics?

February 14, 2006

The city of Oakland may soon join the long list of state and local governments imposing "litter taxes" designed to offset trash collection costs. From the Houston Chronicle:

Fed up with burger wrappers, french fry containers and paper cups, Oakland officials have decided to force fast-food restaurants, convenience stores and other businesses to help pay for cleaning up street trash.

Under a tax approved last week by the City Council, businesses will be assessed between $230 and $3,815 annually, depending on their sizes. More than three-quarters of the affected businesses would pay only the minimum fee, which amounts to 63 cents a day.

"I don't think that's too much to ask so neighbors don't have to keep picking up trash from their doorways," said Councilwoman Jane Brunner, who proposed the measure. The city would use the projected $237,000 a year to hire small crews to pick up litter in commercial areas around high schools and middle schools where most of the garbage is found.

The fee was opposed by the Metropolitan Oakland Chamber of Commerce and business organizations that say the costs will be passed along to customers, including low-income residents and young people who are the biggest consumers of fast food.

The California Restaurant Association said it is considering a lawsuit to keep the tax from taking effect. (Full story here.)

Litter tax proposals seem exotic, but they're fairly widespread both within the U.S. and internationally. The phrase "litter tax" returns 37,000 Google search results alone.

In the U.S., there was a broad push for litter taxes in the 1970s as environmental awareness and support for recycling grew. For example, Washington State passed one of the nation's older litter taxes in 1971 as part of a litter control and recycling act (a 0.015 percent tax on more than a dozen industries, with collections around $7 million per year). In 1977 the state of Virginia launched a litter tax, followed by Nebraska, Hawaii, Ohio, and others. (See one recent summary of litter taxes here.)  

Are litter taxes good policy? Many argue that they satisfy what economists call the "benefit principle"—if some industries or consumers cause litter, they should pay to clean it up. However one problem with this is that litter taxes are fairly broad, taxing many of those who don't litter as well as those that do.

Here's why. Assume the economic incidence falls on consumers. That means it will tax every consumer regardless of whether they litter, penalizing a large majority for the behavior of a tiny minority of litterers. Now, assume instead that incidence falls on companies. That means the tax essentially penalizes companies for illegal littering behavior by their consumers, which they likely have little control over.

In most municipalities, littering is already outlawed by ordinance. Selling sandwiches in plastic bags is not the moral equivalent of littering, any more than selling automobiles is the moral equivalent of committing hit-and-run accidents. In neither case can sellers reasonably be expected to control what's done with their products once the sale is completed.

As a result, regardless of where the incidence lies, litter taxes likely penalize many of the wrong people, raising some doubt about how well they satisfy the economist's "benefit principle" after all.

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