Why DC's Plastic Bag Tax Works So Well

The District of Columbia's plastic bag tax of 5-cents generated only $150,000 in January, far below analyst's expectations. But that's the good news.

The number of bags handed out by supermarkets and other establishments plummeted 85%, from 22 million to 3 million. The revenue will go to cleaning up the Anacostia River.

As Atlantic colleague Megan McArdle mentioned during the morning meeting, it would imprudent to read too much into these early returns. It's possible that some consumers, shocked by the initial pricing of the bags, elected to carry their few groceries by hand or linen bag in the weeks after the tax debuted. Still they might eventually decide that 5-cents per plastic sack is a small price to pay for convenience. That might be right.

But if the dramatic drop-off holds, the immediate lesson for local policymakers is straightforward. Consumers react to prices, and when the price change is from zero, the impact is particularly acute. You don't need to enact something as steep as a 20-cent bag tax, as Seattle recently tried and failed to do. The presence of a new signal can be enough to change incentives and decisions.

It's true that this tax, like just about any tax, comes with its bizarre exemptions and complications. Bookstores that sell so much as a mint get hit with the tax (bookstore Politics and Prose stopped selling novelty mints in reaction to the measure). Establishments with food and seating are exempt, but only for paper bags. Anti-tax hawks like the Washington Examiner are making some rather silly claims about how Marylanders cannot "afford" this tax because it is "unfair, unwarranted and unreasonable." Baloney. A five-cent Pigouvian tax to account for the negative externality of pollution -- the Anacostia chokes with 200 tons of trash from plastic bags every year, according to the WSJ -- is fair, warranted, reasonable and utterly affordable.

(Nav Image Credit: Wikimedia Commons)

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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