In a development that would surely warm the “two sizes too small” heart of the Grinch, the “Christmas Tree Tax” is being collected for the first time this year. This is a tax levied on the sale of each Christmas tree in order to encourage the sale of ... Christmas trees.
Christmas trees have been a hallmark of American Christmas celebrations since the late 1800s, when the tradition spread from Europe. The National Christmas Tree was first lit by President Calvin Coolidge in 1923, and the most famous of American trees, the Rockefeller Center Christmas Tree, has towered over the iconic ice-skating rink for nearly 85 years. Like many holiday traditions, it has a humble yet charming origin, predating Rockefeller Center itself. The building’s construction workers — mostly Italian immigrants — set up their own tree on Christmas Eve 1931, festively decorating it with cranberry strings, garland and blasting caps!
Today, the tradition shows no signs of waning. According to the National Christmas Tree Association, Americans spend more than a billion dollars buying almost 30 million Christmas trees annually.
Nevertheless, this new tax will fund the newly formed National Christmas Tree Promotion Board to extoll the benefits of live Christmas trees. It may look similar to the “Got Milk?” marketing campaign, except this campaign will promote live trees over artificial trees. Unsurprisingly, the National Christmas Tree Association was part of a lobbying effort that convinced the U.S. Department of Agriculture that Americans were buying too many artificial trees and not enough live trees.
In fact, there are almost two dozen USDA “checkoff programs” that implement small taxes on agricultural goods, like milk, eggs and pork, which fund industry commissions to research and promote their products to customers. This is how slogans like “The Incredible, Edible Egg” and “Beef: It’s What’s for Dinner” were created. The taxes — like the 15 cent per Christmas tree tax or the $1 per head of cattle tax — are barely noticeable by customers. But when added up over the 22 affected industries, these taxes furnished USDA programs with an estimated $750 million in 2006.
Economists, most notably Mancur Olson, identify this phenomenon as “concentrated benefits vs. diffuse costs.” Small, focused interest groups are more likely to mobilize to capture benefits, especially when they can be had at the expense of larger, less-organized groups. A special tax on Christmas trees might inspire indignation among the general population, but the cost per person is so low that we probably won’t see any angry mobs marching on D.C., waving torches and oversized candy canes.
The checkoff programs cause more problems than just indignation, however.
First, these programs facilitate collusion. Tree farmers would likely favor a collaboration to restrict supply and raise prices to earn monopolistic profits, but antitrust laws prevent this. However, checkoff programs allow producers a limited ability to collude if they can argue it’s in the best interest of the industry as a whole. If Ford, General Motors and Chrysler schemed to raise the price on every car by $100 to fund a “Buy American” advertising campaign, that would possibly be illegal, but because of laws passed by Congress, agricultural industries can use the USDA to do exactly that.
Second, this mandated-collusion represents the USDA picking winners and losers. Consumers pay higher prices, the industry’s potential competitors suffer reduced sales, and some individual companies in the industry may see other, more influential, cartel members steal their business. Collusion also reduces economic efficiency and innovation, inhibiting economic growth.
In short, these programs represent governmentally granted privilege wherein the authority of government is exploited to tilt the economic playing field to favor some people at the expense of others. While the effect for each individual person might be small, the influence this has on government institutions is much worse. When our leaders allow government to be used in this way, they incentivize bad behavior by more and more people, leading to a vicious cycle of accelerating political favoritism and distrust of government authority.
So as you sit down to your delicious holiday dinner, don’t mind the fact that the Christmas ham, mashed potatoes and whipped cream on the pie all have hidden taxes to benefit special interests — just like your Christmas tree.
Michael Farren is a research fellow with the Mercatus Center at George Mason University in its Project for the Study of American Capitalism. Scott Eastman is a program coordinator for the project and the State and Local Policy Project at the Mercatus Center. They wrote this for InsideSources.com.