My Bag Tax?

The City Council in Philadelphia is proposing a 25 cent charge per-plastic-bag used at a store...small businesses would get to keep the revenue for themselves, larger ones would have to give some of it back to the city as taxes. I'm not sure how I feel about it, but I've been asked by a few readers to share some thoughts, so here's my first-cut analysis.

Some people are asking "why not just ban it?" On principle, government should intervene and ban really harmful stuff, but there's a whole category of other things which provide value, but which people tend to over-consume due to a market failure (a negative externality). This occurs when someone gets most or all of the benefit of an action, but only incurs a small portion (or none) of the cost of that action. The government doesn't want to ban a helpful activity altogether, but it needs a way to keep it in check, lest people hurt society for their own benefit. Governments cap emissions on cars, for example (if cars could pollute more, they'd be cheaper, and drivers would get all the benefit while passing most of the cost onto everyone else who has an equal stake in having clean air). Taxation is a powerful market-adjusting tool if applied correctly...one of the greatest public health measures of the century in this country has been the cigarette tax.

A tax also makes sense because it helps generate money that can be used to help offset the harm caused by the thing being taxed...helping to negate the initial wrongdoing. If Philadelphia put the revenue towards city beautification, cleanup projects, and creating green jobs, it may be better than a ban, which would eliminate consumer choice. I'd rather have the option of bringing my own bag or paying 25 cents for one as opposed to being forced to bring my own bag. A tax is no WORSE than a ban from an individual consumer's perspective...unless a store under a ban would switch to free paper bags and under the tax will just charge for the bags...and now I'll get into the real problem I have with the tax:

It's extremely regressive. Poor people will end up paying a higher percentage of their income, and generally be more shafted, for several reasons. One, they'll be less well prepared for the switch, as they don't read my blog (and other factors). Two, avoiding the charge is an expense and hassle more easily managed by wealthier people: buying good reusable bags would be a substantial one-time expense, and it's a lot easier to use such bags once acquired if you have a car and don't have to take a bus (they'll be bulkier, and must be carried both ways). Third, and most importantly, it's a flat fee tax, that is, everyone pays the same. It won't rise or fall with income or even the value of the items purchased, making it more regressive than even a sales tax, which at least goes down as you buy cheaper stuff. This tax is proportional to the amount of stuff bought, and when it comes to groceries, poor people buy cheaper, but they still need to eat the same amount of food as anyone else. If passed, this may be one of the most necessarily regressive taxes in history. (I say "necessarily regressive" because there are more regressive taxes that target products preferred by poor people, like the cigarette tax actually. But poor people at least have a choice not to smoke; they don't have a choice not to buy groceries, making it necessary to choose between paying the charge or paying to avoid it.)

(OK, now that I've made some good points, I'll go back to being wishy-washy.) The only thing I can think of to mitigate the regressive problem is to require that any place offering plastic bags also offer paper ones, which won't be subject to a city-mandated charge. It's not a perfect solution, and I generally hate the idea of government micromanaging business like that. The whole thing doesn't sit right with me...that said, it is a step in the right direction environmentally speaking and people will adapt to it. On a macro-level, though, I think a national gasoline tax would be a lot better than widespread plastic bag bans or taxes, and I do love my Wawa bags.

Now I want a Wawa sandwich. Who's surprised?