The Register Citizen (Torrington, CT)
Plastic bag ban will cost taxpayers
What if every smoker in Connecticut stopped smoking one day? What a boon to the health of the citizenry! However, the state would be out about $365 million in annual cigarette tax revenue.
Virtually the same thing just happened. The state’s largest retailers stopped offering disposable plastic checkout bags to customers on Aug. 1, rather than begin paying Gov. Ned Lamont’s new 10cent tax on each bag. The new state budget includes $55 million in plastic bagtax revenue. With the state’s retailers going cold turkey, that revenue may not materialize.
Historically, most disposable plastic bags have originated in grocery stores. According to the grocery industry group Connecticut Food Association, CFA members have used about 450 million plastic bags a year. Recently, the largest CFA members, Stop & Shop and Big Y, announced their noplastic policy and implemented it at the beginning of the month, and according to CFA President Wayne Pesce, the rest of the industry is almost certain to follow suit.
Other types of Connecticut retailers have accounted for an estimated 250 million disposable plastic bags in past years. The bags they use may not be as uniform as supermarkets’. The new bagtax applies to bags with a thickness of less than four onethousandths of an inch. Many clothing stores, for example, use thicker plastic bags not subject to the tax.
Some big retailers, such as Walmart, don’t offer customers a paper bag alternative. However, rather than introduce paper, they could opt to increase the thickness of their plastic bags to avoid the tax.
This wouldn’t be corporate misbehavior. To understand why, we need to get into bag economics. According to CFA, disposable plastic bags cost retailers about a penny each. Singleuse paper bags cost about 7 to 10 cents each. So retailers can’t just switch to paper without incurring costs, which they must either absorb or pass on to customers.
Arguably, luxury retailers can absorb the cost, but grocers cannot. It is a thinmargin business. Continuing to use disposable plastic bags would cost $45 million in taxes annually, while substituting paper at their own expense would cost the state’s grocers about $27 million to $41 million. Stop & Shop and Big Y have announced that they will charge customers 10 cents per paper bag.
Before we go any further into business economics, let’s summarize the impact upon the state’s citizens. They will have to pay up to about $45 million in yearly paper bag fees at supermarkets. And, if the state is unlikely to collect the $55 million in plastic bag tax revenue, what will Lamont and the Democrats do? Raise other taxes, right?
The paperversusplastic standoff seems to be a damnedifyoudo and damnedifyoudon’t proposition. Is there a way out? The consensus view is that reusable bags are the best environmental alternative. Both Stop & Shop and Big Y have announced free giveaways and/or discounts on reusable bags in August — but will charge for them thereafter, as they have previously. So, the financial damnation is threedimensional.
Without engaging in the environmental side of the issue, suffice it to say that things are complicated. It is unarguable that we should try to protect the environment. How is debatable. What is highly debatable is the wisdom of instituting socalled sin taxes designed to tax sin out of existence: Does the tax wind up changing behavior or does government become addicted to the revenue? The financial implications of Gov. Lamont’s plastic bag tax are clear. Connecticut residents will pay more at the supermarket and elsewhere, and the state’s taxpayers will have to pay more taxes in order to replace plastic bag tax revenue unlikely to be collected. Thankfully, Lamont’s bag tax will sunset into an outright plastic bag ban in 2021. But where will Lamont find $55 million in his next budget? Taxpayers beware.
In the meantime, the bag tax shortfall is likely to show up alongside several other items likely to push the current state budget into deficit sooner rather than later: hundreds of millions of as yet unidentified labor savings included in the budget, the asyet unagreed cost to settle the lawsuit over the state’s highestinthenation hospital tax, and the $180 million in tax revenue the Governor conjured over and above the official Consensus Revenue Forecast.
Maybe a continuing economic expansion elsewhere in the nation and an ongoing stock market advance will bail out Lamont’s budget. Maybe not.