Friday, August 04, 2006

Missouri Sales Tax Holiday: A Public Policy Gimmick

Missouri Sales Tax Holiday: A Public Policy Gimmick

Today, tomorrow, and Sunday, is the Missouri Sales Tax Holiday on so-called "Back to School" items.

On these three days, the following items are exempt from state sales tax and local sales taxes in most communities (except those opting out):

  • Clothing – any article having a taxable value of $100 or less
  • School supplies – not to exceed $50 per purchase
  • Computer software – taxable value of $350 or less
  • Personal computers – not to exceed $3,500
  • Computer peripheral devices – not to exceed $3,500

    (More details here.)

    The sales tax holiday was first proposed in 2003 by Governor Bob Holden as a sweetener to a package of 'revenue enhancers'... trouble is, most of his proposals for increasing revenues did not pass. Yet the sales tax holiday, estimated then to cost the state $5 million, did pass. It first was held in 2004, and was so popular the newly Republican-controlled state legislature made it permanent for 2005 and onward.

    Sure, personally, I probably will take advantage of the no/low sales tax days.

    But wouldn't it be better just to have a lower sales tax rate overall? Instead, we have this silly three-day 'sale'. Also, during the 1990s partial sales tax exemptions were instituted on groceries and, to placate the college student lobby, college textbooks (when purchased in a college bookstore). That was back when the state government was flush with cash. You may remember they were even mailing state income taxpayers tiny little refund checks for several years. This is because of a thing most people call the Hancock Amendment (PDF info here) but officially called "Article X Distributions."

    The thing is, sales taxes are often considered regressive. They place more of a burden on the poor than on the rich. Maybe the back-to-school exemptions alleviate that slightly -- but then, how many really poor folks can afford to spend $100 on a single piece of clothing, or $3,500 on a new computer?

    I am skeptical retailers benefit much from the sales tax holiday. Consumers, particular low-income folks, may have a few more cents in their pockets. I guess the stores count on people spending more than they otherwise would, because they're getting such 'great deals' due to the sales tax holiday.

    Also the sales tax holiday results in slightly higher administrative costs both for the retailers' accounting/bookkeeping functions, as well as for MO Department of Revenue. They have to track three days worth of sales, on selected items up to selected dollar amounts, differently than other items. Sure, it's easier to do with computerized inventory and financial management systems, but it still costs something to set that up accurately. I suspect the additional profits are marginal at best.

    The municipalities, many of whom opposed the sales tax holiday and hence opt out by continuing to charge sales taxes, may be the smartest of all. Those who opted out still get to collect their local sales taxes. But the State of Missouri gets zero sales tax revenue from those selected items on those three days.

    Ultimately, it's just a gimmick to keep us from realizing that, actually, Missouri has a very low, inequitably distributed tax burden. Our state income tax system is almost as regressive as sales tax, simply because the tax table established in 1931 has never been changed! Up to $9,000 per year (after deductions), it's a progressive scale. But after that, it's a flat 6%.

    As a result, according to Missourians for Tax Justice, the poorest 80% of Missourians pay over 9% of their income in taxes. The richest 20% pay only 5% to 7%, and the richest 1% pay only 5.1% in taxes.

    Maybe we should consider giving everybody who makes less than $6,000 per year after deductions, an income tax holiday in 2007!

    Or just get some of 'em back on Medicaid and increase the minimum wage to $6.50/hour. Yeah, that might be better. ;-)

    Steve Wilke-Shapiro said...

    Joe, my gut has always told me that this sales tax holiday is not a good idea but I've never been able to put my finger on why. Thanks for putting the numbers out there in a comprehensive and easy to understand essay.

    Anonymous said...

    Thank you. It's exactly a gimmick. I have the "privelege" to work at a certain large, big box retailer (where their favorite color is Red), and all the hype that goes into this weekend "event" makes me want to laugh.
    We don't plan our sales forecasts much higher than usual for the weekend, because Back-to-School sales are already in full-swing, especially in my middle class location. These people don't realize that they are only saving about $2 on their supplies, and not much more on whatever clothes they buy, yet they act like it's the best idea since sliced bread.
    The only benefit I see to it is that the vast majority of back to school shopping is over and done with come Monday, we run out of staples like wide-rule looseleaf and markers, and get the pleasure of telling people, Sorry, maybe they have more next door (that other big box retailer where lots of stuff is Blue).
    An income tax holiday for folks like the low-income people that work at my store, and the store next door, and live in the neighborhood behind us would make much more sense. School supplies are cheap, and with a little scanning of the sales fliers, you can probably stock up the kids for under $10 apiece. But a "raise" by setting a limit on the amount of income tax they pay would be brilliant.

    Doug Duckworth said...

    Yes, it is a sham. Increase shopping at big box retail.

    On sales tax: I would like to see it replace the national income tax.

    I dislike paying income taxes, and research from CATO shows it can be done.

    Yes, attack me for citing CATO. Go ahead, please do.

    I do not like their social security policy, but they are right on when it comes to income taxes.

    Sales tax can be made progressive with tax rebates.

    I wrote a large paper on this topic last semester.