Shop Talk
Retailers, consumers and prices
Check Out Line: Sales tax holidays a political gimmick
Check out a study that calls sales tax holidays poor tax policy.
With a number of states wrapping up back-to-school sales tax holidays, the Tax Foundation, which describes itself as a nonpartisan organization that monitors fiscal policy at the federal, state and local levels, called such exemptions “nothing more than political gimmicks that do little to help consumers.”
The Tax Foundation said such ”holidays,” which the group said amount to a 4 to 7 percent price reduction for consumers for only a brief period, simply favor certain industries over others and increase tax code complexity. In some cases, some retailers simply raise prices during a “holiday,” effectively absorbing the benefit, the group said.
“If a state must offer a ‘holiday’ from its tax system, it’s a sign that the state’s tax system is uncompetitive – something that must be addressed with permanent reform,” Tax Foundation staff economist Mark Robyn said in a statement.
“In order to provide lasting relief to consumers, policymakers should cut the sales tax rate year-round, while broadening the sales tax base to include all goods and services would ensure that government would be able to raise necessary revenue in the least economically distortionary way,” said Robyn, one of the report’s authors.
In citing how the states pick winners with the tax holidays, the Tax Foundation cited Virginia’s hurricane-preparedness sales tax holiday, which applied to cell phone chargers but not laptop chargers and duct tape but not masking or electrical tape.
States have resorted to such tax breaks as a way to boost consumer outlays at a time when the recession has led to a clampdown on their spending.
Check Out Line: No tax = more shopping
Check out the tax-free shopping spree.
Many states that levy sales tax on clothing offer a short break on the tax in the summer, which, in turn, spurs back-to-school shopping.
Ten states, including Virginia, offered shoppers a chance to buy tax-free last weekend, with most states offering a tax break on clothing up to $100 per item, FBR Capital Markets noted in a new report.
Their analysts saw “some of the strongest” surges this year in customers visiting stores and buying.
FBR Capital Markets said Aeropostale and Gap’s Old Navy were among the few stores it saw actually advertising the three-day discount. Others hoped to benefit from word-of-mouth.
The weekend came right after retailers, in general, posted a decline in July sales at stores open at least a year. August’s same-store sales could get a boost since some tax-free weekends moved into August after landing in July last year.
Also in the basket:
your blog is so nice about shopping baskets.Thanks.
Sales tax holidays to the rescue?
What’s one way to get reluctant shoppers back into the stores? Give them a sales tax holiday — or two or three.
That’s what the National Retail Federation is urging the government to consider as part of the economic stimulus plan being debated in Washington.
“We think what this can do is to help consumers psychologically get back into the stores,” said Rachelle Bernstein, NRF vice president and tax counsel, on a call with reporters. “We are hopeful that with a national sales tax holiday, which will get a lot of attention, that it might be something to help make the consumer feel good again.”
The NRF outlined its sales tax idea in December in a letter sent to the incoming Obama administration. The trade group proposed that tax holidays be held on a national level in March, July and October 2009, each lasting 10 days. By temporarily lifting the sales tax for the three 10-day periods, the NRF said consumers could save nearly $20 billion.
The NRF returned to touting the idea on Tuesday, the same day it forecast that retail sales will fall 0.5 percent this year–the first decline predicted since it began issuing such forecasts in 1995. The NRF said a large part of the forecast hinges on the government taking swift action to implement a stimulus plan.
In order to garner support among U.S. states for so many tax holidays, the trade group is suggesting the federal government reimburse lost revenue to the 45 states that charge sales taxes.
While state sales tax rates range from 2.9 percent to 7.25 percent, providing consumers a break from paying that tax seems to entice them to spend more than usual.
The whole idea is ridiculous. All it would do is postpone purchases of big ticket items to the period of the holiday. Who would buy a car or big screen TV in the weeks leading up to the holiday? Only someone who doesn’t care about the marginal difference in price and would be buying anyway. Would areas that have a sales tax greater than the 7.25% be reimbursed for the difference, or would they lose out, areas that are already fiscally at risk, such as the county in CA in which I live. And not even just big ticket items would be affected. Smart consumers would to their back-to-school shopping in July only, and Christmas shopping in October only. And the retailers would be impacted by having to staff up for these short periods of time, with the additional personnel and administrative costs for the extra hires. Not a good use of federal tax money, and with out the federal reimbursement, it would be horrible for the affected states. Bad, bad idea, go away.
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