A simple tax creates a bag of problems

Posted by Marc Hodak on January 25, 2010 under Unintended consequences | 2 Comments to Read

“There oughta be a law” is the religious mantra of statists.  But people habitually understate the complexity that even the simplest laws can create.  The WSJ provides an object lesson in this:

The Washington, D.C., bag tax seemed simple enough:  Beginning Jan. 1, grocery stores in the district would charge five cents a bag, plastic or paper.  The goal was to cut down on waste and raise money to clean up the polluted Anacostia River.

But nearly a month into the program, it’s turning out that government is having trouble legislating its way out of a plastic bag

This article highlights one of the universal, and universally ignored, facts about regulation.  Regulations are force.  If you fail to comply with a regulation, you are subject to fines or sanctions, and ultimately confiscation or imprisonment.  Therefore, regulations must make fine distinctions about what is being taxed or proscribed.  You have to translate “taxing paper bags at food stores” into something that will, in every case, separate legal from illegal behavior.  It’s never as simple at it sounds:

The law specifically excludes bags that “package bulk items, such as fruit, vegetables, nuts, grains, candy, or small hardware items.” It also excludes those that “contain or wrap frozen foods, meat, or fish…flowers, potted plants, or other items where dampness may be a problem.” Other exceptions include unwrapped prepared foods and bakery goods, as well as bags provided by pharmacists to contain prescription drugs, newspaper bags, door-hanger bags and laundry dry-cleaning bags. Also tax free: “Bags sold in packages containing multiple bags intended for use as garbage, pet waste, or yard waste bags.”

By law, a restaurant patron who requests a doggie bag doesn’t have to pay a nickel—as long as the bag is paper, not plastic. “When you go to a nice restaurant and you want a doggie bag, you may have already cleared the bill,” Mr. Wells said. “You don’t want to go through this whole nickel kind of relationship.”

A takeout sandwich shop, however, has to charge unless it has chairs and tables, in which case it doesn’t have to charge as long as the bags are paper, 100% recyclable, made of at least 40% post-consumer recycled content and say something like “Please Recycle This Bag” in highly visible type on the outside of the bag. Banned altogether at food and drink establishments: plastic bags that can’t be recycled (the opaque plastic kind).

There are many other exceptions and clarifications, and they continue to grow because the line of demarcation between what is and isn’t taxed is not as black and white as the legislators originally thought.  It never is.  The point is that something as simple as taxing bags, something legislators can deal with by some wordsmith and a show of hands, can turn into a bureaucratic morass for everyone else involved.

Politics & Prose, a well-known local bookstore, sold one food item—mints—including a variety that came in a tin with Barack Obama’s likeness. To be safe, and avoid charging every customer who bought a book five cents a bag, the store dropped the mints. “It’s all been a little bit unclear,” says Tracey Filar Atwood, general manager. “Those items are not really at the core of our business. It was a very easy decision to make not to stock them,” she says.

For many other stores, the decision is not so easy.  But this “simple” tax will cause a major realignment of commerce into stores that sell food versus those that sell none at all.  Nobody pretends that this realignment would be of the least benefit to anyone.

If a social engineering project as simple as a 5 cent tax on bags can create this much confusion, bureaucracy, and pointless market realignment, consider what havoc a massive experiment like cap and trade or health care reform would wreak.