“Bag Taxes Disappointing in Debut”

May 12, 2010

A new Tax Foundation Fiscal Fact on bag taxes, “Bag Taxes Disappointing in Debut”, explores the development of state and city bag taxes:

In at least 15 states, bag tax proposals are pending (see table). Sometimes they are pitched as “fees” and sometimes as “taxes,” with important rhetorical, political and legal ramifications. In almost all cases, proposed bag taxes do not come close to meeting the definition of a fee. Even when pitched more honestly as taxes, they are likely to fall short of ambitious environmental clean-up goals. Also, bag taxes cause unintended effects, such as stimulating bulk purchases of plastic bags, perhaps of a type that would cause equal environmental damage. And bag taxes invariably get caught up in the political process in which special interests in business and government are served more than the public’s interest.

Whether assessed theoretically or practically, bag taxes are not a promising development in tax policy.

The D.C. bag tax had the effect of lowering demand for plastic bags. But whether the environmental impact of this will be significant is unclear. What is clear is that the tax will raise money. Where the money from a pigouvian tax goes is usually irrelevant—what matters is that the targeted product decreases in usage. But with many government budgets still in disarray, and the sometimes ease of intergovernmental transfers and fund raids, some concern should be present for a bag tax as a discriminatory revenue grab.

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