December 29, 2008
Retailers Seeks National Tax-Free Holidays
By Tom Ryan
The National Retail Federation
last week urged President-elect Barack Obama to
incorporate three national tax-free shopping holidays in 2009 as part of
his administration’s overall economic stimulus legislation.
"The situation is
critical," the NRF wrote in a letter to Obama.
"In October, consumer confidence was at its lowest level in the 41 years.
We urge you to act quickly on legislation to help stimulate consumer spending
as one of the first priorities of your new administration."
The NRF proposes that
tax holidays be held during March, July and October 2009, each lasting
10 days. The tax-free benefits – covering all taxable goods except
tobacco and alcohol – are expected to save nearly $20 billion, or
almost $175 per average family.
Unless stimulus to aid
consumers is explored, the NRF warned that the retail recession will extend
well into 2009.
"It does not appear
that these concerns will abate any time soon," the NRF said. "With
consumer spending accounting for 70 percent of GDP, it is difficult to
foresee an improvement in overall economic growth until consumers regain
their footing. Retailers’ considerable experience with sales tax holidays
has shown that they provide a substantial inducement for people to shop."
An NRF survey conducted
when a national sales tax holiday was considered in 2001 found 82 percent
of consumers favored a tax holiday, 83 percent would take advantage by
making purchases, and 69 percent would make purchases they otherwise would
not have made.
NRF also called for infrastructure
investment in roads, rails, ports, public schools and renewable energy
projects, saying it would have a "double benefit of creating jobs
and repairing systems that are critical to commerce."
Mike Englund, chief economist with Action Economics, told CNNMoney that stores typically see spending drop off
a month before the event as people hold off on their purchases. This, in
turn, "robs" spending from the surrounding months. "So the
benefit to retailers may not be as much as expected."
"From a policy standpoint,
perhaps the most effective way to deal with the sales tax issue is to lower
the tax rate rather than eliminate it altogether," he said, adding
that a lower rate would be an incentive to consumers to shop more while
states would still get the revenue to invest in infrastructure development.
Discussion question:
What do you think of the NRF’s plan for a series
of tax-free holidays to help stimulate the economy and its likely impact
on consumers? What do you think of the overall benefits of tax-free holidays?
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The idea of a tax holiday is a gimmick. I agree with Action Economics that the holiday will cause consumers to delay purchases, so a large part of the so-called gains will not be new shopping.
A sales tax holiday could also hurt states that are already suffering from the economic downturn by cutting off a key source of their revenue.
Finally, the government needs to be careful about supporting spending by consumers and determine what is the best way to rebuild strong economic growth. To build that growth on the backs of consumer spending could lead to another credit bubble.
Do you realize how much a family would have to spend to save the average of $175? The issue is that people aren’t spending, not that they are paying too much sales tax. It’s not going to be enough to motivate someone to buy a car, although it could change the day they buy it if they’re already planning the purchase. This is political crap. Let’s get real.
NRF shot a skinny arrow into the air,
Where it was pointed I do not care,
It’s a lame tactic that just won’t sail
So let’s not stand up to yell “Hail!”
Of which taxes will products be free on the designated days? Just state and local sales taxes? What has the Federal Government got to do with state and local taxes? The NRF must not realize that Obama can’t rescind a tax unless it is federally mandated. He can give us a holiday from income tax or withholding tax but I don’t believe the separation clause will allow him to stop a state or local tax unless he declares a national emergency.
Excellent call-outs on this issue. I’ll add that a tax-free holiday would seem to disproportionately benefit high-ticket items/categories (consumer electronics, for example) while providing little to no benefit for others. Mega dittos on “gimmick.”
Retailers are grasping for a solution to the current economic condition. When any kind of sales become the primary objective, rather than profitable sales achieved by having what the customers want and in the right quantities, the tax holiday idea becomes nothing more than another promotional gimmick.
Management needs to focus on balanced inventories. The give away events (40-50-60-70% price off promotions) through the pre-holiday and post holiday periods decimated inventory balance. Consumers cleaned out the good merchandise and retailers are still faced with the clean-up of merchandise the customer passed over at the reduced prices. Stores are currently very weak in best selling items, colors and sizes.
Mature merchants would have never allowed themselves to be in this position today. At some point, retailers will be forced to suffer the kind of withdrawal pains they will experience as they attempt to get off the ‘price off addiction’ they have acquired.
A Tax Holiday is not the cure.
Sales tax holidays are another option for the incoming administration to consider. But we can’t spend our way out of this recession. Consumer confidence is the bigger hurdle. Before consumers give retail spending the green light, they need to feel confident about their overall financial status, e.g., whether they’ll even have a job in a few months. A sales tax holiday may help put some consumers in a shopping mindset, but the actual decision to buy means they have to feel confident about actually having money to spend.
Sounds like a feel-good gimmick. Sales tax is a local and state issue, not a federal issue. Some states don’t even have a sales tax while in cities like Chicago it’s around 10%. How would this be fairly implemented? Nothing would happen in New Hampshire and downtown Chicago would be hopping.
If the average family is only going to save $175, well, that’s just pocket change. This is 2009 and the average family is not interested in how to save a few hundred dollars, we need to be talking about several thousand dollars to get anyone’s attention. Right now, local governments are cash strapped. I think it would be hard to get everyone on board for this.
A sales tax holiday would be a Band-Aid in the emergency room…but it did grab some headlines.
It’s definitely a feel good gimmick with negative consequences. States like California can not afford to lose more tax revenue. The federal deficit can not afford to lose more tax revenue. Getting the economy back on a sound footing is more important. It is time to stop the gimmicks and make some real, substantive changes with long-term positive effects.
I am agog that the NRF would have the chutzpah to call for a sales tax holiday and additional infrastructure spending in the same letter. Public works projects are paid from our taxes; it’s at cross purposes to call for a cut in those taxes and an increase in spending. Of course, it may be necessary to do exactly that to get out of our downturn but there are more effective means than a sales tax holiday.
This proposal is silly, selfish, and short-sighted. What’s more, I have my doubts whether the Federal Government can legally override state taxes in this manner.
If shoppers haven’t responded to 20%, 40%, 70% off, why are they going to respond to a drop of a sales tax that runs anywhere from 0% to 10%?
Seems like a PR stunt with no real ability to move the needle. If people weren’t shopping after the holiday of 70% off, it is doubtful 8% savings on one day will motivate anyone. In addition, it may just have people postpone buying something until that day, making any bump nil.
I had the same thoughts about jurisdiction, then I realized that Congress could do it the same way they meddle in many other areas: threaten highway funds (hey, it’s justified ‘cuz people use roads to travel to stores to buy…right?) But it’s even worse then a gimmick, it would simply shift existing purchases onto tax-free days.
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The idea of a tax holiday is a gimmick. I agree with Action Economics that the holiday will cause consumers to delay purchases, so a large part of the so-called gains will not be new shopping.
A sales tax holiday could also hurt states that are already suffering from the economic downturn by cutting off a key source of their revenue.
Finally, the government needs to be careful about supporting spending by consumers and determine what is the best way to rebuild strong economic growth. To build that growth on the backs of consumer spending could lead to another credit bubble.
Do you realize how much a family would have to spend to save the average of $175? The issue is that people aren’t spending, not that they are paying too much sales tax. It’s not going to be enough to motivate someone to buy a car, although it could change the day they buy it if they’re already planning the purchase. This is political crap. Let’s get real.
NRF shot a skinny arrow into the air,
Where it was pointed I do not care,
It’s a lame tactic that just won’t sail
So let’s not stand up to yell “Hail!”
Of which taxes will products be free on the designated days? Just state and local sales taxes? What has the Federal Government got to do with state and local taxes? The NRF must not realize that Obama can’t rescind a tax unless it is federally mandated. He can give us a holiday from income tax or withholding tax but I don’t believe the separation clause will allow him to stop a state or local tax unless he declares a national emergency.
Excellent call-outs on this issue. I’ll add that a tax-free holiday would seem to disproportionately benefit high-ticket items/categories (consumer electronics, for example) while providing little to no benefit for others. Mega dittos on “gimmick.”
Retailers are grasping for a solution to the current economic condition. When any kind of sales become the primary objective, rather than profitable sales achieved by having what the customers want and in the right quantities, the tax holiday idea becomes nothing more than another promotional gimmick.
Management needs to focus on balanced inventories. The give away events (40-50-60-70% price off promotions) through the pre-holiday and post holiday periods decimated inventory balance. Consumers cleaned out the good merchandise and retailers are still faced with the clean-up of merchandise the customer passed over at the reduced prices. Stores are currently very weak in best selling items, colors and sizes.
Mature merchants would have never allowed themselves to be in this position today. At some point, retailers will be forced to suffer the kind of withdrawal pains they will experience as they attempt to get off the ‘price off addiction’ they have acquired.
A Tax Holiday is not the cure.
Sales tax holidays are another option for the incoming administration to consider. But we can’t spend our way out of this recession. Consumer confidence is the bigger hurdle. Before consumers give retail spending the green light, they need to feel confident about their overall financial status, e.g., whether they’ll even have a job in a few months. A sales tax holiday may help put some consumers in a shopping mindset, but the actual decision to buy means they have to feel confident about actually having money to spend.
Sounds like a feel-good gimmick. Sales tax is a local and state issue, not a federal issue. Some states don’t even have a sales tax while in cities like Chicago it’s around 10%. How would this be fairly implemented? Nothing would happen in New Hampshire and downtown Chicago would be hopping.
If the average family is only going to save $175, well, that’s just pocket change. This is 2009 and the average family is not interested in how to save a few hundred dollars, we need to be talking about several thousand dollars to get anyone’s attention. Right now, local governments are cash strapped. I think it would be hard to get everyone on board for this.
A sales tax holiday would be a Band-Aid in the emergency room…but it did grab some headlines.
It’s definitely a feel good gimmick with negative consequences. States like California can not afford to lose more tax revenue. The federal deficit can not afford to lose more tax revenue. Getting the economy back on a sound footing is more important. It is time to stop the gimmicks and make some real, substantive changes with long-term positive effects.
I am agog that the NRF would have the chutzpah to call for a sales tax holiday and additional infrastructure spending in the same letter. Public works projects are paid from our taxes; it’s at cross purposes to call for a cut in those taxes and an increase in spending. Of course, it may be necessary to do exactly that to get out of our downturn but there are more effective means than a sales tax holiday.
This proposal is silly, selfish, and short-sighted. What’s more, I have my doubts whether the Federal Government can legally override state taxes in this manner.
If shoppers haven’t responded to 20%, 40%, 70% off, why are they going to respond to a drop of a sales tax that runs anywhere from 0% to 10%?
Seems like a PR stunt with no real ability to move the needle. If people weren’t shopping after the holiday of 70% off, it is doubtful 8% savings on one day will motivate anyone. In addition, it may just have people postpone buying something until that day, making any bump nil.
I had the same thoughts about jurisdiction, then I realized that Congress could do it the same way they meddle in many other areas: threaten highway funds (hey, it’s justified ‘cuz people use roads to travel to stores to buy…right?) But it’s even worse then a gimmick, it would simply shift existing purchases onto tax-free days.