In 2009 the Washington, D.C. city government piloted a bag tax program that is quickly rising to the top of state and local legislature’s agendas. The law, formally known as the Anacostia River Clean Up and Protection Act of 2009 and informally as, “the bag law,” places a 5-cent tax on each plastic bag used in any store that sells food or alcohol. The fee was meant to deter plastic bag consumption in an effort to decrease litter in the Anacostia River, which has for years suffered from toxic run-off and extremely high levels of trash and debris– plastic bags being the biggest culprit. For customers who wish to pay the fee and use plastic bags, at least 3/5 of the revenue collected goes directly to a river cleanup fund. 1 cent/bag is reserved for the local business’ to reward them for compliance, or 2 cents if they offer a rebate program to customers who bring their own bags. Economists might refer to this as a type of consumption tax; by taxing environmentally or socially damaging habits, “bad” behavior is de-incentivized and revenue is raised for the public good. Except it’s not really a tax, it’s a fee; businesses do report it to the Office of Tax and Revenue, but that’s just the easiest way for the government to collect the funds. The comic below explains the law well:
With two-years past, the program has raised over $3 million for river cleanup efforts. The money has been used for a number of initiatives including installing trash traps in drain systems, although some groups maintain the money is being wasted in a slush fund. Regardless, plastic bag use dropped by 86% almost immediately after implementation in 2010, but has slowly leveled to a reduction of around 70% as more citizens become accustomed to the fee. The program is also generating less and less revenue, which proponents of the program say is good news since that implies more shoppers are using re-usable bags. Opponents argue that in the long-run, more citizens will switch back to paying for their bags, since 5-cents isn’t enough to deter people forever. Other criticisms are that the fee disproportionately affects the poor – a common criticism of consumption taxes in general. Environmentalists counter that lower income people can find a number of ways to transport their groceries without plastic bags. They also point out that the program is in the poor’s best interest, since the Anacostia river is surrounded by lower-income areas that suffer from degraded water quality and an unsightly environment. This blog isn’t in the business of picking sides, (unless you need a lawyer), but the DC program’s success has clearly inspired other local municipalities to enact their own bag diversion laws.
In May, 2011, neighboring Montgomery County, Md., passed a nearly identical law. Their website says, “The revenues from this charge will be deposited into the County’s Water Quality Protection Charge (WQPC) fund. The revenues will effectively shift the burden of litter clean up costs from public taxpayers to consumers who have a choice to avoid the 5-cent charge by bringing reusable bags.” Now, Prince George’s County, Md., looks poised to pass its own bag law this year. This could help further the river restoration efforts, as parts of the county are upstream from DC on the Anacostia. In other parts of the country, cities are already imposing even higher fees for plastic bags (upwards of 20 cents/bag) or banning them outright, as was done this year in San Francisco. Environmentalist’s are leading the charge with campaigns such as the infographic on the left depicts. However, the relative success and popularity of the law has policy makers considering a new approach to generating revenue – taxing consumption, not income.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.