In Defense of the Christmas Tree Tax that Isn’t a Tax at All

(Photo: Lynn Friedman)

Millions of Christmas trees will be hauled away this week — some will enjoy a useful life after death and many others will end up in the dumps. But record numbers of Christmas trees will also be boxed up and stored in closets till next year. And that has many Christmas tree growers feeling in the dumps, ever more so after anti-tax crusaders trashed a plan to rescue their declining industry by labeling it “Obama’s Christmas Tree Tax.”

The $0.15 fee on the sale of fresh Christmas trees hardly seems like the stuff of political scandal. But announced in November—just days before many Americans would make the trip to tree farms in search of the perfect tree—and branded by conservatives as an assault on Christmas and a sign of government overreach, the story quickly gained traction, with the Drudge Report driving nearly a million visitors to the Heritage Foundation, which broke the story. Before long, mainstream news outlets were reporting that the administration had caved to conservative backlash and decided to delay the “Christmas tree tax” indefinitely.

Regrettably, while the Heritage Foundation is taking a victory lap, many agricultural economists are shaking their heads. They know that, far from a conventional tax, the proposed tree fee would be one among dozens of similar programs grounded in economics and shown through numerous studies to bolster domestic farmers’ incomes. Several such campaigns have entered the pop culture lexicon with phrases that are instantly familiar to consumers, like “Got Milk,” “Beef. It’s What’s for Dinner,” “Pork, the Other White Meat,” and “Happy Cows Come from California.”

All of these programs are voted in by the respective growers, themselves — often a supermajority of them, in fact — and funded by assessments on themselves. The programs are also subject to periodic renewal by these same growers, and are almost always voted back into effect with overwhelming support.

Despite sunny assurances from the Heritage Foundation that “the American Christmas Tree has a great image that doesn’t need any help from the government,” Christmas tree growers have been losing market share in recent years to factories in China that mass-produce trees made of metal and plastic. The L.A. Times reported during the week of Christmas that the domestic live-tree industry has “declined sharply” as “wrenching changes have reshaped the $1.5-billion-a-year industry.” Artificial tree sales have doubled to 17.4 million from 2003 to 2007. It was precisely this problem that the Christmas Tree Marketing Board was supposed to fix, supported by about $2 million in revenue from the tree fee.

Agricultural commodity marketing boards are designed to resolve market failures that result in farm commodities being under-promoted relative to products from other more highly concentrated sectors of the economy wherein firms can appreciably affect demand for their products with individual promotional efforts. Generic commodity marketing suffers from a classic free rider problem. An individual Christmas tree grower could reap benefits from his investment in promoting live Christmas trees only in proportion to his market share, which, is naturally near zero for most of the family operations. Other growers would also reap the benefits of his investment according to their market shares and yet incur none of the costs. Why, then, would any grower undertake marketing on his own?

Heritage notes that, in the past, voluntary Christmas tree marketing programs collapsed after three years, as increasing numbers of growers declined to make contributions and funds dried up. But whereas Heritage suggests past failures as a reason to oppose the new fee, they, in fact, highlight the perniciousness of the free rider problem and the need for compulsory grower support to ensure success. And don’t forget, the Christmas tree fee only survives if it garners support from a majority of Christmas tree growers.

The question now is whether mom-and-pop Christmas tree operations will survive the threat imposed by imported, fabricated imposters that, while short on tradition and ceremony, offer convenience: no tree sap, no pine needles, and no saws. Virtually every grower-approved check-off, as the fees are called, has been approved by the USDA, which administers the programs but has never in recent history deviated from default approval because of political exigencies. And though the check-offs have been challenged in court as a form of compulsory speech, the U.S. Supreme Court has affirmed their constitutionality, even its conservative members.

Heritage is right about one thing, though. As with a tax, a portion of the grower-assessed fee, which equates to roughly 0.4% of the price of a typical tree, will be passed on to consumers according to the price responsiveness of Christmas tree demand. But that is about where the similarities end. Unlike a tax, the fee won’t raise a dime for Uncle Sam.

One can imagine an intelligent debate on the merits of commodity check-offs, in general, and the Christmas tree one, in particular. But after the alarmist rhetoric from the anti-tax right, we are, regrettably, left only to imagine.

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  1. rationalrevolution says:

    Yeah, I’ve found this to be a fascinating issue as well. Regardless of the merits of artificial trees vs natural, there are many interesting issues here.

    First off, is the issue that the rise in the sales of artificial trees is of course closely tied to the falling price of artificial trees due to Chinese production. So, at the outset what we have here is an issue of domestic American small farmers fighting against Chinese imports, and the “conservatives” have taken the side of the Chinese!

    Now I’m not a nationalist or even a patriot, but I find the position of the conservatives to be quite ironic. Here they are attacking an industry that’s as American as American can get and effectively taking the most “un-American” side possible.

    In addition however, what’s really instructive about this issue is what you address here, which fundamentally is why this type of program makes sense and why these types of programs are used. The problem for radical libertarian types, however, (I really can’t call these people “conservative”, since radical “free-marketism” is really anything but conservative, its really radically liberal in the true sense of the word) is that acknowledging the merits of the Christmas tree marketing program (from the economic perspective of the farmers) fundamentally undercuts the very core of free-market ideology.

    Its a clear example of how and why collective action is sometimes not only needed, but economically beneficial directly to the individuals and how market theory itself shows that individual actions aren’t optimal.

    This is what kills libertarians. They constantly complain about free-riders, accusing the recipients of tax dollars of being free-riders, but the fact is that without compulsory taxation for certain types of things, first off everyone who didn’t pay but still benefited would be a free-rider, and of course as a result, just as happened with the Christmas tree marketing issue, the entire system would breakdown and no one would pay to do anything because anyone who payed for the benefit would be “selected against” by the free-riders, who wouldn’t have to pay but would still get the same benefits, thus getting a market advantage and running those that pay out of business, then eliminating the benefit, or basically everyone will just stop paying due to the anticipation of this effect. This is WHY we have to have compulsory system, to PREVENT free-riders.

    I’ve never been sure if libertarians just don’t understand this, or they understand it and they secretly all just want to be free-riders.

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    • Kiru says:

      This is horribly confused, but this is fairly typical of someone trying to diagnose confusion because they don’t understand how the other side approaches issues. Libertarians oppose enforced taxation for something as trivial as advertising. The inability of the tree-sellers in the US to form an industry group responsible for large-scale advertising (for, strangely enough, a rather localized market) does not mean the FDA should be responsible for advertising for a sector.

      Think about what it means if you declare “insufficient advertising” a “market failure”. In all seriousness… where does it stop?

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      • Kiru says:

        sorry “USDA”… should be more careful when I’m reading Lowe’s blog and this one at the same time.

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      • Mike B says:

        Even if a trade group was formed it wouldn’t have the force of law to collect appropriate fees from free riders for actions taken from the common good. The individual does not have a right to sabotage the collective action of the community. What would the Libertarians prefer? A tragedy of the commons situation where entire industries collapse because they lack the power to enforce anything on its members or where said industries take matters into their own hands to punish those who act against the will of the majority? The whole point of Government is to provide an alternative to mob style coercion where your tree farm catches fire when you fall behind on your dues.

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      • rationalrevolution says:

        This has nothing to do with advertising. The issue here is whether you support democracy or not. What you are stating is that majorities of people shouldn’t be able to petition the government and request that it take action on their behalf through an orderly process. That’s all this is, period.

        Now let’s assume that we take this position, the position that individuals have no right to petition their government, or that they have no right to even have a government. Do you think that people would simply give up on all collective action?

        Of course not. The result would be that people would band together and form cartels and mafias, and instead of petitioning the government to run a national marketing campaign for them, they would, without the imposition of “big brother”, instead simply do stuff like set trucks that haul artificial Christmas trees on fire, make death threats against importers of fake Chinese Christmas trees, etc., etc.

        And understand this well.

        You are complaining about individuals coming together collectively to petition the government to take collective actions to prevent free-riding and protect their commons, but the alternative to this isn’t going to be “more individualism”, it’s going to be less.

        The reason that this problem exists is because Christmas tree farming is done on a small scale by a large number of independent small farmers. On the other hand the production of artificial Christmas trees is done on an industrial scale, probably by a small number of semi-state-run companies in China, and distributed through a relative handful of large American corporations. The production of artificial Christmas trees is, relatively speaking, a highly centralized affair.

        So, on the side of the artificial trees we have a small number of large corporations and state-backed enterprises in China, on the other side we have a large number of independent small farmers. The only way that those farmers can maintain their independence is through some cooperation. The alternative is going to be elimination of small scale tree farming altogether, in which case there will be no independent small farmers left.

        So their choice is either to collectively agree to a 15 cent per tree tax and hopefully be able to keep their independent businesses, or be driven out of business and be forced into becoming wage laborers or consolidate with other farms to create larger corporate farms.

        I can tell you this, the latter two options involve giving up a LOT MORE independence than paying a 15 cent per tree tax….

        The farmers, themselves, figured this out, and decided for themselves, that their best option to be able to maintain as much independence as possible, was to take collective action through the government, and YOU want to deny them their ability to that!

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      • Patrick says:

        1. What if a “freeloader” decided that, in his local market, a national real-tree-buying-campaign wouldn’t make a difference? What about their ability to make market decisions? Many posts comment on “the tragedy of the commons,” but if this were such a tragedy, and marketing could make such a big difference, then wouldn’t Christmas tree growers be able to convince “freeloaders” to join their cause? Wouldn’t we already see some success with this, at least on smaller scales? And if we did see some success on smaller scales (say, the Christmas tree farms around Rochester NY), why would there be a need for a national campaign?

        2. Do we really think the government’s ability to tax Christmas trees 15 cents at a time would be “budget neutral”? Let’s say 50,000,000 live Christmas trees are sold each year. (My estimate, I think optimistic.) This raises $7.5 million in taxes. How much money would it cost the government to collect this tax on approximately 12,000 cut-your-own-tree farms, or the total 21,000 Christmas tree growers?

        3. Will the Stanford tree become a national spokesperson for a national campaign?

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      • Steve O says:

        It seems like the Christmas tree tax is a great example of taxes being used for a clear and logical purpose. It helps the “supermajority” of parties afflicted by the tax (and no, the people buying trees do not count as ‘afflicted’) and the money is being used to promote US interests. The money is going from the growers to their own government program.

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      • bert says:

        I do not support democracy for this reason. Thankfully neither did the founders, Jefferson said that democracy is nothing more then mob rule where 51 percent take away the rights of the other 49 percent.
        Governments exist only to protect the natural laws which are already in existence, not to launch advertising campaigns.
        That’s why our constitution is a charter restricting the government as to which civil liberties they are not allowed to violate when making laws.

        By doing this you are really only creating a national cartel. Im all for the Christmas tree growers but using the government as a weapon of force to collect fees for commercials is not a legitimate way to run your advertising campaign

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    • RGJ says:

      Okay…so….time goes by, and the game changes, and suddenly those awesome artificial Xmas tree manufacturing and design profit machines are plunging — jobs being lost, family-owned artificial Xmas tree companies like California’s Balsam Hill are barely clinging to life agaisnt the live tree marketing juggernaut.

      But wait! If, if a tax could only….the government could save…hurray!

      Next, save the buggy whip industry!

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      • rationalrevolution says:

        Err… the problem with your analysis is that in this case “the government” isn’t saving the industry, its not a bail out, its not a subsidy, it’s merely executing a marketing campaign using money provided by the growers themselves.

        So in this sense its no different than any private marketing campaign, the only difference is that in this case there is no single corporation or brand being marketed, only Christmas trees in general, just as milk in general or beef in general…

        So this isn’t the case of the government saving the buggy ship industry, its a case of a collection of independent farmers coming together and using a large national entity with the ability to make sure that all members of the industry chip in, doing what any normal business does in the face of competition…

        It’s really no different than the way that McDonald’s requires that all franchises contribute toward the monies that are used in national McDonald’s marketing campaigns. You can’t, as an individual franchise owner, opt out of paying for McDonald’s advertising.

        In the case of Christmas tree farmers, though, they are more independent, they aren’t all franchises under a single corporate mother corporation, so they have no single central private entity to do their marketing for them, thus the reason they turned to the government.

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      • RGJ says:

        Of course it is a tax. What happens to the Xmas tree sellers who decide not to pay it? The legal thrashing that the government brings on any taxed entity I assume.

        This is not like the usual company’s choice to join or not join a trade association…it is government interference in a free capitalist market.

        Every new tax has some purported altruistic benefit that one can argue away….and big government advocates always will.

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      • Steve O says:

        @RGB’s response-to-the-response: “All of these programs are voted in by the respective growers, themselves — often a supermajority of them, in fact — and funded by assessments on themselves. The programs are also subject to periodic renewal by these same growers, and are almost always voted back into effect with overwhelming support.”

        The people who grow the trees are the ones who vote and re-vote for this fee.

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  2. Joris says:

    The question I’m left with is: At a policy level, why does the government even want to promote real trees? If people prefer artificial trees, why does the government care? Sure, most artificial trees are made in China instead of the US, but they are sold, a at markup, by local shops, providing jobs and tax revenue to the USA.

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    • Dan says:

      The government cares because the government represents people. This is not an example of central planning by the government; it is exactly the opposite. Tree growers have a collective interest to sell more trees, so they lobby their representatives and viola! Fake tree producers can do (and probably have) the same thing. That we are hearing about one is not evidence that the other doesn’t exist. Public policy is produced in a marketplace of ideas where groups compete for a spot on the public agenda– “tree taxes” are part and parcel of the political system just as much as when the Heritage Foundation manipulates the story to support their narrative of government run amuck.

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    • Mike B says:

      The government isn’t preferring anything. It simply provides a mechanism by which agricultural industries can collect fees from individual growers to promote their products. The government is providing a coordination service, nothing more. Would you prefer small independent growers to be replaced by large corporations that doesn’t run into the same sorts of problems?

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      • Nick M says:

        I find it hard to believe the government isn’t showing a preference for this industry by organizing this program.

        What would your opinion be like if the government helped organize and regulate a marketing organization you didn’t like?

        For instance, what if various hate groups decided they couldn’t get the message out well enough and that their were too many free riders for their marketing campaign to work. If only the government would enforce a fee on racist newsletters, videos, books and websites, they could all organize together to have their message shared more convincingly.

        I think most people would be justifiably horrified if this happened.

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      • Mike B says:

        By your logic we should ban nails because somebody MIGHT use them in a bomb. Just because you can think up some negative scenario doesn’t instantly disqualify the sorts of positive outcomes that are not only intended by this sort of system, but have been demonstrated in the past.

        BTW if a programme like this was somehow misused I would show my dissatisfaction at the ballot box or express it to my elected officials. If the government reflects the will of the majority then that’s my problem when it doesn’t reflect my own individual views. We can’t all get what we want.

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      • James says:

        But the government IS preferring someone here: it’s subsidising the advertising industry at the expense of consumers.

        Consider that the tree market (commercial grown + artifical + cut your own) is zero-sum: few people are going to want more than one tree. If the tax is passed, commercial growers will increase their market share at the expense of artifical trees. So the artifical tree industry lobbies for its own tax, which also goes to advertising. Consumers pay higher prices for trees, that extra cost is transferred to the advertising industry.

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    • rationalrevolution says:

      Like the others said, “the government” is doing nothing here other than implementing something that the tree growers requested. The government is just a tool. The tree farmers came to the government and petitioned it to do this for them. That is, in theory, how all government is supposed to work. The problem is when you have government planners setting out programs and agendas on their own without the request, or even consent, of the people.

      In this case, however, the whole program is at the request of “the people”.

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      • Nick M says:

        “The Government” most certainly is doing something else — enforcing the law. What happens if a grower doesn’t wish to participate in this marketing program and refuses to collect the tax?

        Penalties of some sort must exist. Who enforces those penalties?

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      • Name Redacted says:

        Why should any manufacturer be forced to advertise against their will? If this is such a good idea, then why does the government have to use the force of taxation. Maybe some producers would rather have a lower price than contribute to a advertising campaign that may not reach their customers. Voluntary exchange is the key to prosperity whether buying a tree or choosing advertising. The USDA is a relic of FDR’s great depression and should be abolished. It has killed almost as many as the FDA.

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      • Steve O says:

        @rationalrevolution: I think at some point, you have to realize that people aren’t reading the article, or they don’t understand it. It doesn’t matter how much you simplify it, they won’t get it.

        I am very anti-tax and anti-big government, but this program has little to nothing to do with big government. If anything, I’d expect extremely LEFT-minded people to oppose this sort of thing.

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  3. Mike says:

    Growers are free to organize an advocacy group on their own. Couldn’t it simply be that this particular industry has decided they don’t want to pay for an advocacy group?

    Even if one would have been beneficial, why would it be the government’s responsibility to impose, collect, and use the tax?

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    • Mike B says:

      Because standard advocacy groups don’t have any legal force to collect money from independent growers. What part of tragedy of the commons don’t you understand? It wouldn’t be a tragedy if people were naturally inclined to act in their communal best interest. In a situation where no single grower wants to be a sucker and pay dues into an organization his competition can free ride on, coordinated government action may be the only mechanism that allows a super-majority of growers to get the action they want.

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    • Clancy says:

      It’s right there in the post above. The growers tried to organize on their own, but failed because of the free-rider problem. Government is in the perfect position to solve this problem since it has the authority to collect the tax fairly from everyone who would benefit.

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    • rationalrevolution says:

      The other two posters who replied have basically answered the question, but I’ll add that if they were to independently form any entity which had the power impose and collect this fee and use it the way that they wanted to, that would effectively be the formation of a level of government. That’s what “government” is.

      They would have to form a government of some type to do what they need to do. We already have a government, so forming a new government just to do this would be highly inefficient, not to mention in conflict with existing laws, and in the end, the net result would be exactly the same, imposing a fee on everyone to pay for something that is collectively beneficial.

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  4. James says:

    This ignores a third large (at least hereabouts) source of Yule trees, which is that you go out in the woods – either your own or a friend’s land, or the National Forest (having of course purchased a permit from the Forest Service) – and cut one.

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  5. RGJ says:

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  6. Mike says:

    There is a free-rider issue.

    On the other side of the coin is the forced-rider problem. Some of the so called free-riders don’t want the association to be created. That is, they don’t want to be free-riders or forced-riders.

    This also assumes that a Christmas tree (are they allowed to call it that when the government steps in) is a commodity but there are many types …

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    • Mike B says:

      The way to deconflict a free-rider problem and a forced rider problem is a little thing called majority decision making. Your right to be left alone doesn’t necessarily trump someone else’s right not to have their business go under.

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    • rationalrevolution says:

      You are in a life raft with 10 other people and there is a large wave coming at you. The only way to survive the wave is if everyone in the raft leans to one side. You realize this, so you say, “Quick everyone lean to the starboard side!”, but 2 guys say, “No, I don’t want to, shut up and leave me alone!”, then everyone else says, “Lean to the other side now or we’ll all die!”

      Question: Do you have “a right” to force those people over to the other side of the raft, or do you all have to accept imminent death so as not to impose on their “freedom”?

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      • Mike B says:

        People don’t seem to understand that Government isn’t some sort of sinister scam or cabal, but a necessity for any group of free willed individuals. Every organization needs a method to enable group decision making. Take away that ability and the result is dysfunction and failure. Sure bad governments can be pretty bad, but no government is the worst of all. I’d rather live in North Korea than Somalia.

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  7. Bill Harshaw says:

    The question is whether it’s right for the state to devolve a bit of its power to an association of tree growers (or citrus growers or cotton producers, etc.), the power to convert a vote of the growers into a mandatory fee. Of course, the state devolves a bit of its power whenever it requires lawyers to pass the bar exam, or hairdressers to be licensed, or whatever. In each case an economic group is trying to secure larger incomes by enforcement of some mandatory rule. A thorough-going libertarian should reject all such state licensing requirements: let anyone be a doctor by hanging out his shingle.

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    • Mike B says:

      A lot of the world still works that way and those places tend to suck. If Libertarians want to be free of the man so much why don’t they move to Central America and have at it? The answer is that they want to free ride on the function and order our generally good government has engendered over the last 2 centuries without contributing their fair share.

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      • James says:

        Because A) “The man” is there even more effectively than here; and B) The climate’s lousy.

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    • rationalrevolution says:

      Well, people form governments in order to protect their interests. People will always seek out ways to protect their interests. Any government that doesn’t protect the interests of the people that it serves will eventually be overthrown and replaced with one that will.

      Why should Christmas tree growers accept the ruin of their likelihoods due to large corporations and state-backed Chinese artificial tree manufacturers without petitioning their government for help and why shouldn’t out government help them when they ask for it? And if it won’t, why shouldn’t the tree growers then start a revolution to overthrow the government and replace it with one that will act on their behalf? Or you think they should simply accept elimination at the hands of state-backed Chinese corporations?

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  8. Nir Kozlovsky says:

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