DC's New Tax

On new years day residents of the District of Columbia became test subjects in Pigouvian tax experiment. Now there is a 5 cent levy per plastic bag induced to minimize the negative externalities produced by plastic bags.

Most residents were aware of the new measure while some where shocked and appalled. Now that we are seven days into the experiment we can begin to analyze some of the results (mainly consumer reactions) which span the spectrum of disgusted to furious.

Talking to friends and neighbors I pretty much got the same feedback, the government is trying to take my hard earned money. My response, not so. The DC government could care less of the revenue generated from this tax, the purpose of it is to curb behavior which in this case is minimizing the number of plastic bags created each year.

Plastic bags unlike paper bags take longer to deteriorate and are very harmful for the environment. They also create negative externalities in the form of pollution in both our rivers and the streets and they are not recycled enough. Up to now the private sector has done little or nothing to fix this problem (although Wholefoods offers a subsidy for reusing their bags) which means that it is up to the public sector to fix this market failure. Their assumption is that plastic bags are very price elastic which means that levying a tax on them will cause consumers to move to alternatives (e.g reusable bags, recycled bags, or no bags at all).

Social welfare advocates heavily oppose this tax because it burdens low income citizens more than anyone else because it takes a larger share of their income (although its a flat tax it can be seen as a regressive tax because it burdens the poor more than the rich). While their observations are correct they fail to see the purpose of the tax. They also fail to recognize that this tax (in my opinion) targets low income citizens who are less prone to recycle and not litter. These same advocates should look up what similar tax's did in India which had terrible pollution problems attributed to plastic bags. Their urban population consists of dense areas of poverty yet the tax's did not make them worse off, it simple changed their behavior.

Only time will tell how successful this tax was but I believe that DC was correct in implementing it. Consumers will initially be angry but as time passes they will switch to alternatives and go on with the rest of their lives. We are simply enduring a short-term hassle for long-term prosperity.