The Resin Tax moving through Congress threatens the Plastics Supply Chain and whole economy

This is not a drill. The U.S. Congress is considering a proposal to extract 20 cents per pound on plastic resins produced domestically. There are strong economic arguments against such a proposal, specifically how it affects jobs, consumption, and disposable income.

Perc Pineda Ph.D
Perc Pineda Ph.D

My understanding of the proposal is that the resin tax will be collected from resin manufacturers. This increases the cost of business and puts 68,200 resin manufacturing workers’ jobs at risk. It should be noted that the capital expenditure of resin manufacturing in the U.S. in 2020 was $6.1 billion. For every $1.00 spent in manufacturing, another $2.79 is added to the economy. Hence the proposed resin tax, because it will slow the business activity of resin manufacturing, 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 in plastics bags, packaging film and sheet, and bottle manufacturing 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, it is easy to see that the proposed resin tax will have an uneven impact on labor.

Nevertheless, any jobs and production losses in the plastics industry will also have a negative impact 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%, which will eventually be passed along to consumers.

What are the products that would carry higher prices?

The proposal targets single-use products which contain taxable virgin plastic resin, including packaging, foodservice products, beverage containers, and bags.

Proponents of the resin tax may not be aware that some products carry high plastics content. For instance, for every $1.00 of final demand for snack foods, the plastics content is 11 cents. For soft drinks and ice, it is 12.1 cents of plastics content for every $1.00 of final demand. Coffee and tea carry 10 cents of plastic content for every $1.00 of final demand. There are also 7.4 cents for every $1.00 of final demand for paper bags and coated and treated paper.

The list doesn’t end here. The resin tax affects all products aggregated under the food, tobacco & spirits category such as frozen food manufacturing, poultry processing, seafood product preparation and packaging, breakfast cereal manufacturing, ice cream and frozen desserts, bread and bakery product manufacturing, dog and cat food, etc. Americans will be consuming these products at higher prices because of the proposed resin tax. And in a way, the resin tax is a regressive form of taxation. It makes one wonder if the U.S. Congress views the consumption of these products as something that carries social costs that need to be mitigated by a tax—similar to a sin tax.

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.

Show More

Related Articles

Back to top button