Federal plastics tax is not a good source of revenue

One of the Senate proposals to fund the Build Back Better Act is a federal excise tax on virgin plastics, which are plastics that are neither reprocessed nor recovered. The tax would be $ 0.20 per pound of virgin plastic used to make single-use plastic products. While few details have been released on this payment, a similar tax proposal, the REDUCE Act, was introduced by Sen. Sheldon Whitehouse (D-RI) earlier this year. The plastics industry claims the tax would bring in $ 120 billion over 10 years.

In the REDUCE Act, rates start at $ 0.10 per pound in the first year, then drop to $ 0.20 per pound in the third year. It would automatically increase with inflation in subsequent years.

There are many issues with an excise tax on virgin plastics as a source of revenue for unrelated spending priorities. First, the tax base is excessively narrow. Taxable items are the virgin plastic resin itself, as well as packaging, catering products, beverage containers and bags containing virgin plastic resin, depending on the amount in each product.

Not only is it not a tax on waste, but it is not even a tax on plastics. Under the REDUCE definition of taxable plastic, all recycled plastics and all plastics that are not gas and petroleum based would be exempt. Even though products made from recycled plastic and products made from cellulose acetate (plastic made from plant materials) are also polluting, they are not on the tax base.

While economic incentives could have a positive impact on the viability of the recycled plastics market, it is less certain that a federal tax alone would have a significant impact on waste. For example, a federal tax does nothing to improve local collection and recycling programs, which must be improved to generate competitive recycled resin, and may not be enough to make these processes viable on their own. Without the availability of a competitive substitute, manufacturers would not have the incentive to make the investments in the production processes necessary to rely on recycled plastics. In addition, a narrow tax base leads to a lack of revenue stability and increases the non-neutrality of the tax.

Similar to many other excise taxes, the tax is regressive. It is technically levied on manufacturers and importers of plastic products, but the additional costs will be passed on to consumers of single-use plastic products, pushing up the prices of everyday items. It is unlikely that a single American consumer will not purchase products made or packaged in single-use plastics.

Regressive taxes are not always bad taxes, but lawmakers should consider this aspect when designing them. As a revenue tool for a large spending plan, how the tax is distributed matters, especially in light of President Biden’s pledge not to raise taxes for Americans earning less than $ 400,000 per year. year.

Because the plastics tax is presumably intended to internalize the externalities associated with the production of plastics in addition to simply increasing income, the previous effort to tax plastics, the REDUCE Act, contained a number of exclusions. For example, this bill offers a discount for products regulated as drugs by the Food & Drug Administration (FDA), as it would be undesirable for producers to skimp on plastics at the expense of hygiene or poor packaging of sterilized products, and there is no reason to penalize companies that use plastics for such purposes.

However, rather than just exempting basic FDA regulated products, the bill offers a discount. In other words, companies would still have to report even when manufacturing or importing exempt products, adding unnecessary complexity and costs to the system. In addition, there are many other industries with products of great societal importance, and where the use of virgin plastics may be unavoidable, that do not benefit from any exemptions.

Unnecessary reporting requirements are not the only problem of complexity. Since importers are also responsible, there may be a lack of information. If an importer is unable (or unwilling) to report information on the taxable plastic content of imported items, a tax of 10 percent of the value of the product will be levied.

The REDUCE law reportedly earmarked revenue for the Plastic Waste Reduction Fund, which is responsible for financing activities aimed at improving recycling and reducing waste. Such a breakdown might make sense, although the narrow tax base makes the design non-neutral. As a payment in the Senate’s plan, however, the tax revenue would have no connection with its ostensive purpose. Since the tax was originally designed to discourage the use of taxable plastics, it should not be used to fund recurring spending programs.

States have moved in a different direction when it comes to plastics and taxes. Instead of simply collecting an excise tax, Maine and Oregon have imposed extended producer responsibility (EPR) regimes for packaging and plastics. Although the rules and regulations for these two frameworks are still being developed, if well designed, such programs offer a greater chance of reducing waste. Of course, if poorly designed, REP plans will share federal tax flaws.

Ultimately, however, the increased costs of producing and using plastics will raise the prices of millions of everyday items. Lawmakers should take this feature of the tax into account when imposing them.

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