Commentary

Retail Bailout Just Recycles Tax Dollars

We have been writing for months that the bailout mania gripping America will produce many long-term negative effects. Financial institutions, insurance companies, auto makers, states, cities, credit card companies, television outlets–all have either petitioned or have talked about petitioning for federal bailout funds. The list continues to grow–now its the National Retail Foundation (NRF) who want to get in on the coming stimulus package. Their proposal highlights the ridiculousness in all this federal money spending extravaganza. The NRF has called for three periods of sales tax-free shopping that would last 10 days each in March, July and October 2009, according to a WSJ article today. On the surface this sounds like a great idea. Tax holidays increase consumption and the NRF estimates that it would save consumers about $20 billion, or $175 per family. But sales taxes are state based, so this nationally mandated tax holiday would be cutting states off from needed funding at time when most of the states are facing deficits. In order to avoid this problem, the NRF, which includes giants like JCPenney, Saks, Petsmart and other major retail chains, proposes that the federal government reimburse states for the lost tax revenue, because sales taxes are largely managed on the state level (some are on the local level). State sales tax rates range from 2.9 percent to 7.25 percent. Because federal money would be covering state losses, this amounts to a “bailout” of a new color for the retail industry. But its all one big recycling effort. Under the NRF plan, the federal government would tax citizens, then give that money to the states, so that the states could in turn give tax breaks to the citizens. Along the way money gets shifted around and citizens don’t really “save” $175 per family. If this was the best way to go why not just limit federal payroll taxes increasing families net disposable income and cut out the middle man. The taxation run around is government’s attempt to tinker with the market and direct resources where it thinks they would best serve society. But the lack of knowledge any one person or government office has limits the effectiveness of this policy. If consumption is needed, why even give tax money back? Just use the federal money and buy everyone an iPod or Zune. Besides, five states–Alaska, Delaware, Montana, New Hampshire and Oregon–don’t have a sales tax, and they would also get money under the NRF plan. How does that make sense? The proposed retail bailout is the clearest possible example for how bailouts unjustly redistribute wealth throughout society on the supposed higher knowledge of the government. We need to stop just giving money away.

Anthony Randazzo

Anthony Randazzo is a senior fellow at Reason Foundation, a nonprofit think tank advancing free minds and free markets.