The weekend Iowans fool themselves

Think about it: How often do you rush off to a ‘7-percent off’ sale?

It’s here again — the weekend when Iowans buy into some really bad political spin, but leave happy about it because they don’t pay tax on the purchase.

Today and Saturday are the dates of Iowa’s sales tax holiday, which we have noted many times — including here, here and here — is a shopping bag full of nonsense.

As IPP’s Peter Fisher noted in 2014, the third link above, “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?” Instead of revenue for schools, it’s a recipe for a retailer’s windfall.

Iowa media quite often play along, with rarely a discouraging word challenging the notion of the break, questioning whether any break actually results, and, importantly, how much it costs public services. (It was $1.6 million in its first year, 2000, and by 2015 the break was valued at $3.6 million lost to services.)

Neither does the Iowa Department of Revenue shed light on these issues, which are at least as important as a list it offers of what you can and cannot buy tax-exempt on these hallowed anti-tax days.

Certainly, the sales tax is one that disproportionately hits lower-income people harder than high-income people. The evidence is clear on that. And reducing the impact of the sales tax year-round would be a sensible step if paired with an income-tax increase affecting higher-income people — same revenue, fairer approach.

But this break goes to anyone, so those very wealthy Iowans who are the largest beneficiaries of the income-tax cuts passed in 2018 also get an extra break here.

And there we have the two largest problems with Iowa tax policy: It is inequitable, and it is based on political spin that ultimately harms the public services we depend upon.
Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

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