By PLASTICS Chief Economist Perc Pineda, Ph.D.
Introduction
This is not a drill. The U.S. Congress is considering a proposal to extract 20 cents per pound on virgin plastic resins produced domestically intended for certain single-use products. There are strong economic arguments against such a proposal, specifically how it affects jobs, consumption and disposable income. My understanding of the proposal in the REDUCE Act is that the resin tax will be collected from resin manufacturers and could be passed down the supply chain. This increases the cost of business and puts over 150,000 manufacturing jobs at risk.
The Rewarding Efforts to Decrease Unrecycled Contaminants in Ecosystems (REDUCE) Act — introduced earlier this year — was incorporated into the larger $3.5 trillion spending bill currently moving through Congress in an effort to raise revenue via tax collection.
The capital expenditure of resin manufacturing in the U.S. in 2020 was $6.1 billion. For every $1 spent in manufacturing, another $2.79 is added to the economy. Because it will slow the business activity of resin manufacturing, the proposed resin tax places $16.9 billion in economic impact at risk. But it doesn't end there. Resin producers could tack on 20 cents per pound on resin going to processors, increasing processors' costs.
Based on our latest estimates in the recently released 2021 Size and Impact report, there were at least 95,200 employees manufacturing plastics bags, packaging film and sheet, and bottles in the U.S. in 2020. All told, 163,400 jobs are now at risk due to the resin tax. This, by the way, excludes other jobs in the plastics industry supply chain — such as in equipment manufacturing — that will also be affected by the proposed resin tax over time. With the concentration of resin production and plastics processing in some states, the proposed resin tax will have an uneven impact on labor.
Any jobs and production losses in the plastics industry will also have negative impacts downstream or on users of plastics — intermediate goods in manufacturing or final goods ready for use. More importantly, the resin tax automatically inflates materials costs. We estimate that in 2020, plastics manufacturers' materials cost was 51 cents per dollar of shipment. The resin tax proposal automatically inflates materials costs by 39.2 percent, which will eventually be passed along to consumers.
The effect of the resin tax will be regressive
The proposal is no different from a selective consumption tax. It increases the market price of the targeted goods that use virgin resin. The demand for these goods is relatively inelastic — meaning consumers will continue to buy despite price increases. This will result in a decrease in disposable income — less money for consumption of other goods and services.
The exact impact on consumption along the way is hard to predict since consumers will make some product substitutions as prices change. Despite that, they will be shopping based on budget constraints, making it difficult for those barely making ends to meet to escape the poverty trap. Policymakers must seriously consider whether the proposed resin tax benefits consumers and the macroeconomy.
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