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Bag tax economics [Editorial]

When Washington, D.C., and Montgomery County enacted 5-cent taxes on plastic bags handed out by grocery stores and other businesses, officials expected that the money the government collected as a result would quickly drop off as customers changed their behavior. As it turns out, that hasn't happened at all. The Washington Post reported this month that the city's revenue from the bag tax has been remarkably stable since it was enacted four years ago, and in fact even went up slightly between fiscal 2012 and fiscal 2013. In Montgomery County, the experience has been similar, with bag tax receipts generally hovering in a narrow band of between $180,000 and $200,000 a month.

That's something Baltimore City Council members need to consider as they debate a proposal to create a 10-cent per bag tax here. The legislation's sponsor, Councilman Brandon Scott, says his goal is to reduce litter in the city's streets and waterways, and there is some evidence from Washington and Montgomery County, anecdotal and otherwise, that the bag tax has had an effect. But there is solid empirical evidence that such a tax does not eliminate bag use entirely and that its effect is more or less static over time. Some people are paying the tax and paying a substantial amount — more than $2 million a year in the case of both jurisdictions. Enacting the tax now — as a majority of the council and Mayor Stephanie Rawlings-Blake seem inclined to do — would fly in the face of the city's overall goal of making its tax structure more competitive with its suburban neighbors.

Backers of the tax proposal point to a survey taken in Washington in which people reported that they were using fewer disposable bags in the wake of the tax, and businesses reported that they were handing fewer of them out. Environmental groups also say they are fishing fewer bags out of the Anacostia River. There are a few possible explanations for the apparent disconnect between the tax data and the survey data — for example, that a greater proportion of retailers are now complying with the tax or that overall retail activity in the booming District is going up. But the city's data offers no definitive answer.

Perhaps the best empirical analysis of the effect of the tax comes in the doctoral dissertation Cornell professor Tatiana Homonoff wrote while in Princeton's economics department. Her focus was on a question of behavioral economics: Does a 5-cent tax on bags have a different impact on behavior than a 5-cent bonus for those who use reusable bags? (Her finding: The tax is much more effective.) That question doesn't take into account all the factors that Baltimore's City Council members need to consider, but her study fills in some of the gaps in data.

Among other things, she did observational studies in the District, Montgomery County and Northern Virginia immediately before and after Montgomery's tax went into effect. Her findings suggest the tax had a substantial effect — a more than 40 percentage point drop in the share of grocery story customers who used at least one disposable bag during their visits, with a simultaneous rise in the share who used reusable bags or no bags at all. Combining her findings with the tax data in the District and Montgomery County suggests that the effect of such a tax is more or less immediate but that it does not change much over time. It doesn't eliminate plastic bag use altogether, but people don't regress to their old behavior either.

One issue Ms. Homonoff's paper does not squarely address, and one that should be of particular importance in Baltimore, is what the socio-economic characteristics are of those who pay the tax. In fact, her study focused on stores in some of Washington's better-off neighborhoods in order to make her sample there more comparable to those in Virginia and Maryland. In an interview, she said the tax appeared to be having an effect across the economic spectrum but that her data were not ideally suited to make that determination conclusively.

At a time when struggling households are getting hammered by Congress' failure to extend unemployment benefits and by cuts to food stamp benefits, the question of just how regressive this tax would be in practice should be of paramount importance in Baltimore. We fully support the goal of reducing litter in Baltimore, and there is little doubt that a bag tax would help. But members of the City Council need to ask, at what cost?

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