The True Cost of Bottle Deposits.

I recently found out that Michigan is losing five and a half million dollars per year on its bottle deposit program due to bottles that were purchased out of state and returned here. To understand how this works, I followed the flow of money logically.

First of all, lets understand just what the bottle return deposit system is. All plastic and glass bottles, and aluminum cans that contain carbonated beverages have a ten cent deposit placed on them by our state government. 

1) This deposit is collected by retailers from consumers and handed over to the state. 
2) The bottles are returned to retailers through machines that issue receipts to consumers. 
3) Consumers exchange the receipts for cash at retailers.
4) The retailers collect and aggregate the receipts and exchange them for cash with the state.

The whole system adds costs to products. Bottles must be handled by retailers. It used to be that a human being did this in the beginning. This person had to collect the bottles and cans, issue receipts and separate them for the recyclers who picked them up. Retailers had to hire a person who did nothing but handle returns. The free market came up with a solution to this by introducing collection machines. There are separate machines for glass, plastic and aluminum. So separation is performed by the consumer as they are returned. And the counting of the returns and issuance of receipts is now automated. The machines require minimal attention and can be maintained by current employees.

The machines cannot differentiate between out of state bottles and cans because it merely reads a bar code that has only product information in it. Retailers are not required to accept for return, brands that they do not sell. So cans and bottles that were purchased out of state that do not have the deposit on them, can easily be returned in the machines. So money is siphoned away from the state by people who have exploited this loophole. I call it the Kramer loophole, after the famous episode of Seinfeld in which the wacky Kramer teams up with Newman to run a postal van full of bottles and cans from New York to Michigan to turn them in for money.

Evidently, the count of out of state bottles and cans returned in Michigan is fifty five million per year. This would equal the five and a half million dollars that is lost each year on Michigan's bottle return program. So, in order to keep the environment free from aluminum cans and plastic and glass bottles, Michigan is spending five and a half million dollars each and every year.


Does this sound like a good use of public funds to you? I grew up in northeast Ohio, and I never saw a blight of aluminum cans or plastic and glass bottles littering the environment. Ohioans, collect the cans, crush them, and take them to the scrap yards who pay the current market price for them based on weight. Also, they turn in plastic and glass when they recycle the cans. In Ohio, there exists a culture of recycling. They also recycle cardboard and paper. In fact it has always been a common thing to do as a way to raise funds for local schools. I can remember my grade school and high school having a "paper drive" with one or two roll-offs placed on the property which community residents were encouraged to fill with used newspapers and magazines. The paper collected was turned in to the paper recyclers and money was issued to the schools based on the tonnage collected. 


In Ohio they spend far less than five and a half million per year to promote this culture of recycling. They do place occasional adds on television and on billboards to maintain this culture of recycling, the environment is cleaner, and the cost to the public is far less.


Meanwhile back in Michigan, the cost of the bottle return system to the taxpaying citizens of Michigan is bigger than just the deposit on the bottles and cans. Because the program pays out more than it receives, the funds must come from somewhere. Typically it comes out of the general fund leaving less for other uses like road maintenance. This has helped create a structural deficit in state finances and it must be addressed. The typical response of our government is to tax more heavily. They have raised taxes on rental cars, and hotel rooms and bed and breakfasts, because they reason that these are typically paid by nonresidents to try to make up for the shortage. But this is a shortsighted fix because about 60% of the 5.5 Billion dollar Michigan tourism industry is fueled by locals. This hurts the tourism and hospitality industries which are involved with tourism. This causes more job losses in a state that can not afford to lose any more jobs!


This is a prime example of why government intrusion into the lives of citizens no matter how well intentioned, can have disastrous consequences for the economy as a whole. It is very interesting to note that the one mention of the free market in this article is a positive one while the same can not be said of government solutions to a problem.