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The (occasional) virtues of nickel-and-diming

The alcohol tax and bag tax are good ideas

The Baltimore Sun
February 8, 2011
Editorial by, Thomas F. Schaller

As I’ve written before in this space, I’m not an advocate for nickel-and-dime taxation policies. One of the unfortunate consequences of the post-1980 tax revolt triggered by Ronald Reagan’s election is that politicians at every level of government, rather than raising income taxes, instead devise inventive, often sneaky ways to generate revenue piecemeal.

Parking meters, speed cameras, car registration fees, snack taxes, levies on cable television and other forms of communication and entertainment, not to mention the so-called sin taxes on alcohol and tobacco — these are the byproducts of the anti-tax movement that has grown so powerful, even President Barack Obama caved to its pressure by extending the Bush-era income tax policies. Of course, these small but ubiquitous taxes and fees add up.

Yet, despite my reflexive opposition to such small-change taxation, the new dime-per-drink tax and a proposed nickel-per-shopping-bag fee in Maryland are both good ideas.

Baltimore residents will remember that in 2009 the city considered adopting a fee for use of plastic shopping bags. A Sun editorial opposing the bag tax cited its cost, which City Councilman Bill Henry proposed setting at a quarter per bag. At the time, Mr. Henry said making it prohibitively high would compel consumers to start bringing their own reusable bags when they shop.

Councilman Henry had the right idea, but The Sun was correct about its excessive amount. The District of Columbia’s 5-cent bag tax law, which took effect in January 2010, proved that a nickel suffices: In the first year, bag consumption dropped by half.

The D.C. bag tax isn’t going to solve the city’s budget problems. In fact, in the first year it only generated an estimated $2 million in revenues — about $1.5 million shy of what city officials had projected.

What made the tax a success is that it created a double benefit for the Anacostia River, heavily polluted by plastic bags. Millions fewer bags are used, reducing those that end up in the river by thousands; and the $2 million raised from the remaining bags used will be dedicated to river cleanup efforts. “In a town where we talk about trillions of dollars all the time, it’s amazing the power a nickel has,” D.C.’s environment department director told the Washington Times.

Maryland legislators should support a similar bill for a 5-cent state bag tax, proposed by Montgomery County Del. Alfred C. Carr Jr. The state’s Department of the Environment, which opposed the bill last year, also ought to rethink its position.

As for the “dime a drink” tax, let’s face it: The extra dime won’t alter most drinkers’ behavior. According to a recent report from the Johns Hopkins Bloomberg School of Public Health, it would decrease total consumption only about 4 percent.

The objective here is the opposite of the bag tax. Although the alcohol tax would only cost the typical drinker $10.83 per year — not much more than the retail cost of a decent glass of wine, plus tip — it would raise an estimated $215 million in revenues that would be channeled into to disability, mental health and state Medicaid funds.

Co-sponsored by Sen. Verna Jones-Rodwell and Del. James Hubbard, the 10-cent drink tax is “good politics and good policy,” says Vincent DeMarco, president of the Maryland Citizens’ Health Initiative and the Health Care For All Coalition.

Mr. DeMarco is right on both counts. Unlike the bag tax, which is designed to change behavior, the alcohol tax is designed to make change — 10 cents at a time — from the relatively inelastic consumption of alcohol because most people will continue to drink, regardless of the tax rate. The bill’s advocates have the citizens on their side, too: A statewide poll conducted during the last week of December shows that two-thirds of Marylanders support the idea.

Like almost every other state in the country that has suffered through declining revenues during the recent recession, Maryland’s budget problems won’t be solved by either of these measures. But neither proposal is designed to do so.

Paying taxes a nickel or dime at a time is a nuisance. But in these two cases, collecting a bit of small change is worth a change in the tax laws.

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