Margolis: Penny wise and pound foolish

Editor’s note: Jon Margolis is VTDigger.org’s political columnist.

It was four score and eight years ago when Noel Coward lamented that: “It seems such a shame / When the English claim / The earth / That they give rise to such hilarity and mirth.”

Vermonters should pay heed. Soon after they (with some justification) collectively patted themselves on their collective back for the resilience and skill with which they dealt with Tropical Storm Irene, they now risk giving rise to hilarity and mirth by embracing what is surely one of the dumbest ideas in the history of the world.

It’s the sales tax holiday.

Granted, it’s a relatively harmless dumb idea, as dumb ideas go. Earlier examples, such as the Crusades and Communism, resulted in mass murder, torture, forced conversions and general mayhem. More recent examples such as food courts and the designated hitter create gastronomic and/or aesthetic outrage which offends – or at least ought to offend – even the minimally sensitive.

The sales tax holiday, on the other hand, will merely cost the state something like $1.5 million while doing no good at all.

But the “merely” here is debatable. Faced with a budget shortfall of something over $70 million, a state acting affirmatively to add to that short-fall might find itself … well, “giving rise to … hilarity and mirth.”

At least by those too good-humored to react with scorn instead of ridicule. There might be some justification for the state to go deeper into the fiscal hole in order to fill the potholes in the roads, feed the hungry, clean the air, or truly stimulate the economy.

But to create an incentive for some hundreds or even thousands of people to buy on one day (Saturday, Aug. 28 is the anointed date) what most of them would have bought anyway?

He/she who thinks that’s worth the $1.5 million surely risks being the object of hilarity and mirth, if not scorn and opprobrium.

According to economists, that’s precisely what sales tax holidays do. They don’t increase consumption as much as they alter the timing of the consumption, and to a smaller extent the nature of consumption.

According to the experts at the generally pro-business Tax Foundation, “Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.”

But one need no advanced degrees in economics or anything else to figure this out. One need only some common sense.

Using common sense, a person who had decided to buy, for example, a fancy new flat-screen television for $1,000 would and should buy it on the sales tax holiday. The TV would cost $1,000, not the $1,060 it would cost any other day.

But that consumer would have bought the TV without the holiday. He or she who can afford a grand for a fancy new TV, and really wants said fancy TV, can afford the extra 60 bucks, and is not going to not buy the TV to save the 60 bucks.

Is it not possible, though, that some people will be swayed by that $60 saving, and buy a thousand-dollar TV they might otherwise not have bought?

Yes, it is possible. It is even true. It is foolish of them. But it is true.

But then guess what those same people no longer have?

They no longer have that $1,000 to spend. If they still had that $1,000 to spend, guess what they would do with it in the days and weeks following the sales tax holiday.

Right. They would have spent it, if not on appliances then on hotel rooms, restaurant meals, tickets to concerts or the movies, gallons of gasoline, articles of clothing, and more, and paid the taxes on most of it (though not much on clothing in Vermont).

It’s true that these consumers would have saved $60 (assuming that the retailer had not jacked up the price). It is also true that the store that sold them their televisions would have sold a few more televisions than they would have to those few consumer who were so taken in by the idea of saving $60 that they spent $1,000 they would not otherwise have spent.

But dollar for dollar, the extra money earned by the appliance store (quite likely a big box chain retailer whose profits go out of state) will not be earned by the hotels, restaurants, theaters, gas stations and clothing stores.

And the $60 saved by the consumer will not be available to the state government, itself a major consumer of goods and services.

Vermont could benefit from the sales tax holiday only if large numbers of non-Vermonters were seduced into heading to Vermont stores that day to make major purchases.

There is not a scintilla of evidence that this has happened in the recent sales tax holidays, and no reason to expect anything different this time. The state’s longest border is with New Hampshire, which has a general sales tax holiday 365 days a year (366 this year). Not that many people live just south of the line in Massachusetts, nor, except for Plattsburgh and environs, just west of it in New York.

But it takes more than an hour each way from Plattsburgh to Burlington using the ferry, which will cost more than $30 round-trip, or much longer without using the ferry. Hardly worth it, even to save $60 or more. It might be a little more sensible for Quebeckers to come south for the day, or it would be if the border crossing hadn’t become such a pain, often including long lines and crotchety border guards.

So the odds are that the sales tax holiday will benefit a few consumers and a few stores, while reducing trade at other businesses and costing the state government, according to the estimate of the Legislative Joint Fiscal Office, $1.5 million that it cannot afford.

Vermonters should hope that the worst reputation they get out of this is hilarity and mirth.