Chicago’s Bag Tax Fails To Generate Expected Revenue, Because Humans Respond To Incentives

A few months ago, my wife and I drove down to Chicago for a Young Americans for Liberty conference.  As always, we were running a little late, and late enough not to have eaten first.  We ended up sneaking out partway through for a snack at the closest place we could find: a local convenience store.

When paying for as much junk food as could fit in her purse to hold us over at least until Massie spoke, we ended up making small talk with the cashier, who was also the owner.  If there is anything I’ve learned about people, especially people at work, they love to complain.  In this case, it was about a new bag tax that Chicago had recently passed.

He explained how he had to buy all the bags his store carried, and then he had to pay tax on every bag he used.  He had the choice between paying five cents per bag on top of paying for the bags themselves, or passing the costs on to his customers at seven cents.  He went on at length about both this new tax, and a myriad of other taxes and regulations that Chicago,  along with gun control and gun violence, is well known for.

I was happy to hear it.  Not because I was a jerk or agreed with the taxes, but I never pass up an opportunity to evangelize liberty or discuss economics.

(“Excuse me sir, but do you have a moment to talk about our lord and savior Ron Paul?” isn’t that far off from how I must seem irl.)

The bag tax was created with two express purposes in mind.  One, is that lawmakers wanted to discourage consumption of bags for environmental reasons, limiting waste that eventually ends up in landfills.  As a general rule, taxing something gives you less of it, while subsidizing gives you more.

Think… cigarette taxes, liquor taxes, gambling taxes, income taxes, etc.  Many of these are crafted more to discourage what the government views as negative human activity than for increasing it’s own revenue stream, at least officially.  It’s the sin tax, or blue law applied to environmental impact.

The second reason for the bag tax was, of course, to generate more revenue for the city, especially given how many businesses and taxpayers have been fleeing it, and Illinois as a whole, this past year.  The Illinois state government itself has gotten organizations like Moody’s to recently consider downgrading the entire state government to junk status, while Chicago retains many of the same systemic problems and, let’s face it, basically controls Springfield.

When it comes to the first reason for the bag tax, Chicago has been wildly successful at discouraging the use of disposable bags and encouraging the use of reusables.  So successful, in fact, that they were doomed to fail at their second goal.  On grocery bags alone, the first month after the bag tax went into effect saw a decrease in use of 42%.  Rahm Emmanuel declared a victory of sorts in April, by saying, “By decreasing our paper and plastic bag use, Chicago is making important progress in reducing our carbon footprint as well as reducing street litter and improving recycling operations.”

But Chicago based it’s budgeting on an assumption of increased revenue from the bag tax to the tune of $9.2 million, and spent accordingly.  With about half a year gone, the city has made only about two and a half million, on track to bring in just a little over half of their expectations for the year.

Gary Doan

Gary Doan

Obviously, he's a guy in front of a keyboard. He uses it to make money through the stock market for his career, but more importantly he uses it to tell other people on the internet how they're wrong, post dank memes, and stay in a constant state of research about economics, law, and history. He lives in a town called Salem in a geodesic dome with his lovely wife, lovely children, regrettable pets, and some random Sanders supporter that lives in his attic and drinks all his booze. He enjoys logic, snark, satire, tattoos, learning, and obviously writing and liberty (even of the viral variety).
Gary Doan