Bargain, schmargain

Retailers love it, because it’s a gimmick to lure people into their stores to buy things at full price, instead of waiting for a back-to-school sale.

It’s back again: Iowa’s SALES TAX HOLIDAY.

What a charade. Retailers love it, because it’s a gimmick to lure people into their stores to buy things at full price, instead of waiting for a back-to-school sale.

The happy-talk label disguises its real impact: to throw away revenue while pretending to, as one report put it, “help boost the economy and give consumers a break.” It does neither.

Iowa’s policymakers are selling you a pig in a poke. You’re told you’re saving money, but you’re buying dirty water, underfunded schools and fees for amenities such as parks. The cost is estimated at over $4 million.

For two days, Iowans will spend money on the same things they would have spent money on anyway, in those two days or others, so it doesn’t boost the economy. Sales taxes do hit low-income folks hardest, but those families would be better served by a break that went all year. They still have only so much to spend in these upcoming two days.

Let’s also recognize that consumers won’t save all that much, if at all — and may in fact pay more. How many times have you rushed off to a “6 Percent Off” or “7 Percent Off” sale? Who’s to say a retailer, with this officially sanctioned “holiday” marketing, won’t bump prices by 10 percent or call off a 20 Percent Off sale that might have been in place?

But it is a deal for politicians who like to brag about cutting taxes, while pointing fingers at others when they cut teachers and police officers because budgets are tight.

If we were honest with ourselves, we would welcome Tax Day and loathe the first weekend of August.

2010-PF-sqPosted by Peter Fisher, IPP Research Director

 

 

Folly of the sales-tax holiday

“How many stores promote a ‘7 Percent Off’ sale?”

Andrew Cannon photo
Andrew Cannon

The Institute on Taxation and Economic Policy (ITEP) hits the nail on the head with a two-page policy brief about sales-tax holidays. Typically scheduled for back-to-school shopping and used in 17 states, they drain revenue, and feed unfairness in a state tax system.

In “Sales Tax Holidays: A Boondoggle,” ITEP notes sales tax holidays “are costly. Revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.”

Iowa’s tax holiday is Friday and Saturday of this week. The timing for the holiday couldn’t be worse, as it comes right before the start of the first school year in which state lawmakers have frozen school districts’ per-pupil spending. Giving up that revenue for a “back to school” sales gimmick is ridiculous.

ITEP identifies the problems with all such “holidays,” including the Iowa break:
— they do not target sales-tax relief to low-income families that are most affected by sales taxes, but offer it to the wealthiest families as well;
— they do nothing to stimulate local economies, because the purchases would be made anyway; and
— for the other 363 days of the year, they leave a state tax system unchanged in its favoritism toward the wealthy.

“Regrettably,” ITEP states, “these holidays may lull lawmakers into believing that they have resolved the unfairness of sales taxes.”

Finally, beyond these standard tax-policy concerns, the sales-tax holiday raises consumer protection issues. It actually provides an incentive to businesses to charge customers more than they would have without the break.

Think about it. The holiday saves Iowans 7 percent on a sale of a clothing item. How many stores promote a “7 Percent Off” sale? But a “no tax” sale — watch the ads this week. Why offer 15 percent off, or 20 percent off, or half off, or 2 for 1, when the state is handing you this promotion?

A “holiday” should be something to celebrate. Fixing problems with Iowa’s sales-tax law could be accomplished in better ways than a two-day boondoggle.

Posted by Andrew Cannon, Research Associate