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Thursday, December 1, 2016

Pssst, Wanna Grocery Bag, or a Netflix Password?

It will be fascinating to see how California bureaucrats plan to win their next crusade against common sense: taxing Netflix.


“No, thank you. I don’t want a bag for 10 cents. I like to juggle on my way to the car.”

In November, California voters passed Proposition 67, prohibiting grocery stores, convenience stores, and liquor stores from giving out single-use plastic bags. Now, stores may only distribute specifically designed, reusable bags, or recycled paper bags. And they must charge customers 10 cents per bag.

The best part for those in government is that voters have nobody to blame but themselves when referendum decisions go awry.As far as intrusions into the private economy go, the bag ban is rather clever.

Although originally passed by the State Legislature, Proposition 67 was placed on the November ballot as a referendum. Thus, with Proposition 67, voters upheld Senate Bill 270 by a 52-47 margin, passing this regulation onto themselves.

Whenever a ballot measure passes by a close margin, I’m always curious about how many voters misunderstood the proposition. How many read “Plastic Bag Ban Veto Referendum,” thinking a “Yes” vote meant they were vetoing a plastic bag ban?

Indeed, we Californians like to gamble on the relative wisdom of our fellow-plebs. Since the Progressive Era, our sunny laboratory of direct democracy has resulted in wondrous innovations, such as a cap on property tax increases (Prop. 13) coupled with a mandatory 40% allocation of State revenues to education (Prop. 98). Not to mention the 2003 gubernatorial recall election, which gave us Governor Arnold Schwarzenegger. (Much to my chagrin, Gary Coleman and Larry Flynt fell short of victory, although both finished in the top 10).

The best part (for bureaucrats and politicians) is that voters have nobody to blame but themselves when these decisions go awry.

Not a Tax?

In addition to having this veneer of plebeian assent, the bag ban is clever in its implementation. First, the 10-cent fee is not a dreaded “tax.” Stores collect the fee and keep the money to cover their own compliance costs. Customers may sneer at bearing this cost, but it is only 10 cents. Plus, since the law imposes quality specifications, these new reusable bags are quite durable.

In the end, customers walk away with nicer grocery bags that don’t rip, and only a few cents missing from their wallets.

And maybe a little sense of environmental responsibility to boot?

“You have done your part today, citizen! Here, have a snappy new bag!”

It all seems very benevolent – as if the law is truly intended to protect the environment instead of being just as another governmental scheme to rob and control everyone (except for the part about fining violators up to $5,000 per violation, per day).

But as time goes on, everyone will eventually forget the policy reasoning and the nice perks. Especially after it becomes obvious that the environmental benefit of the ban is negligible at best.

Then, one day, we will all be paying for fancy reusable bags at checkout, with no earthly clue as to why we are doing this.

And history’s canon of bizarre regulations will have produced its latest Trivial Pursuit question.

Broken Window Tax

In 1696, King William III introduced a tax on windows.

On the surface, the tax was quite brilliant. By taxing windows instead of income, it would be borne by the wealthiest taxpayers (who lived in larger homes). Moreover, evading the tax would prove difficult, as one can readily observe the number of windows on a building.

The window tax seemed brilliant but resulted in decades of amendments, exceptions, and loopholes.Yet, in practice, the window tax – a.k.a., the tax on daylight – was not such a “bright” idea.

For one, the tax was not very progressive. Lower-income families renting spaces in large buildings bore the costs imposed on their landlords. Often, landlords boarded up windows altogether to avoid the tax. To this day, one can find buildings from this period with glazed-over and bricked-up cutouts where a window ought to appear.

As time went on, odd amendments and exceptions were passed to deal with administrative burdens and unintended loopholes. In 1766, the tax was applied to houses with seven or more windows, causing the number of houses having seven windows to plummet by two-thirds.

The profound health effects caused by restricting ventilation and daylight impacted public opinion and the tax was finally repealed in 1851.

And it only took 15 decades. (Parliament had also reintroduced the income tax in the 1840s – so the window tax might have become obsolete.)

A Netflix Tax?

England’s window tax may not have been as strange as its beard tax or hat tax – either of which, if enacted today, would ensure a Worldwide Hipster Uprising. In retrospect, one wonders how anyone was bamboozled into supporting such bizarre regulations.

Yet, the bizarreness is not a defect – it’s the point. There are certainly alternative schemes by which England could have collected taxes, or by which California could protect the environment from the scourge of grocery bags.

But if the scheme is unpopular, or heavy-handed, the plebs might revolt. Thus, a convoluted scheme with limited immediate impact is always preferable to open, and notorious plunder.

With this end in mind, it will be fascinating to see how California bureaucrats plan to win their next great crusade against common sense: taxing Netflix as a utility.

It will be fascinating to see how California bureaucrats plan to win their next crusade against common sense: taxing Netflix.A few months ago, the City of Pasadena announced that it is toying with the idea of taxing online streaming services like Netflix, Hulu, Amazon, and HBO. The 9.4% tax would utilize existing codes, and classify these services among common utilities like water, gas, and electricity.

This is not likely to go over well with the millions who cut the cord to save the high costs of traditional cable plans (including the utility taxes).

Critics wonder how far a city tax on internet streaming services will go. What if I live in Pasadena, but travel out of state and watch Netflix on my iPad? What if I use somebody else’s Netflix password, who lives in a city with no tax?

And why stop at video streaming? How long before the tax covers numerous other internet apps as “utilities”? Will I pay a city utility tax every time I download a song from iTunes?

One Way or Another

Pasadena and other cities will likely go back to the drawing board, and come up with a scheme that is more palatable (but just as costly, and twice as absurd).

Perhaps sometime in the next decade, California voters will be convinced to impose the tax on themselves via ballot referendum. The “Yes” campaign will promote the tax as a means of mitigating the social harm of binge watching.

And there we shall be: swapping Netflix passwords, smuggling black-market grocery bags from the trunk of a Camaro in the Safeway parking lot, and furrowing our brows in utter incredulity at the current situation.


  • Thomas Smith is an alumnus of Berkeley and Pepperdine Law, and a corporate attorney.