Tax deal represents a missed opportunity
Gov. Walz and legislative leaders in the state House and Senate announced the outline of a budget deal Monday morning. Fox 9 reports: The agreement calls for $4 billion in…
A St. Patrick’s Day story from Ireland, courtesy of economist Stephen Smith:
Walk down any UK high street, and the stream of shoppers coming towards you will be carrying their shopping in distinctive plastic carrier bags – orange from Sainsbury’s, green from Marks and Spencer, white and biodegradable from the Co-Op. Walk down the major shopping streets in Dublin, in the Irish Republic, however, and it is far harder to guess where people have been shopping. You’ll see a diverse mixture of bags – many unbranded and more durable than the flimsy plastic bags provided by UK supermarkets, and others clearly re-used from earlier shopping trips.
The difference can be traced to a tax. In 2002, the Irish government introduced a 15 cent tax on plastic shopping bags, which had previously been provided free by supermarkets to their customers. The aim was to stop the environmental eyesore of discarded bags littering the countryside, and the wasteful and unnecessary use of resources. The tax had widespread public support – indeed the Irish economist Frank Conway thinks it may be the most popular tax in Europe. And it had a dramatic effect, cutting the number of plastic carrier bags used by 90% almost overnight. It is a change, also, that has been sustained. The 15 cents levy is enough to discourage stores from handing out unlimited bags for free, and where they have passed on the tax by charging for each bag taken, this has been enough to encourage many shoppers to bring their own bags.
The Irish government wanted people to consume fewer plastic bags. It could have asked them. It could have appealed to their better natures by outlining the environmental harms done by these bags.
Instead, the Irish government decided to use a tax to accomplish their aim. They knew that if you tax something, you get less of it. Appealing to their citizen’s pockets was more effective than appealing to their consciences. As the economist Adam Smith wrote more than two centuries ago:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”
This might strike you as rather cold. Perhaps it is. But it does seem to be effective because it takes the world as it is, not as we wish it would be.
Free markets work because they are better than any other system at aligning personal benefits with ‘social’ benefits so that a person only benefits by meeting some social want. Effective public policy, like the Irish plastic bag tax, does the same thing.
So, today, raise a glass to sound public policy: lá fhéile Pádraig sona dhuit.
John Phelan is an economist at the Center of the American Experiment.