If This is Recovery, Where Are the Taxes?

I know most of you get Mauldin as I do via email every Saturday and the odd week day but, I thought this one was quite thought provoking in separating the wheat from the chaff in terms of what is actually happening versus the massaging of numbers after industry and government have worked them over.
Tax Receipts, just like dead men...don't lie.

He also discusses how "the restraint in the state and local government sector is estimated to drain a full percentage point from U.S. GDP growth in 2010 and more than fully offset the stimulative efforts," the reality of unemployment and goes into why he thinks "we are in for a double-dip recession in 2011."

http://www.frontline...sp?id=mwo111309

The Liscio Report notes that all states had negative year-over-year sales tax collections in October, and the weighted average decrease was 10.2%, down from a negative 7.2% in September.

I wonder if it occurred to John that online shopping is taking a larger and larger chunk of retail sales over the last couple of years? One reason is because of better pricing since you don't pay for a store front and the utilities that go with it, with the other, and better reason to do so, is that sales taxes can be avoided depending on the laws of each state. One only needs to look at a company like Amazon and this idea becomes crystal clear as to its economic implications.

Things change, and that includes the public's buying patterns in both good and bad times. However, the figures do make one wonder how much local and state taxes will be climbing to off set this change in preferences (no less when sales on the internet will be taxed...the ultimate coup de grâce).

Fib

The Liscio Report notes that all states had negative year-over-year sales tax collections in October, and the weighted average decrease was 10.2%, down from a negative 7.2% in September.

I wonder if it occurred to John that online shopping is taking a larger and larger chunk of retail sales over the last couple of years? One reason is because of better pricing since you don't pay for a store front and the utilities that go with it, with the other, and better reason to do so, is that sales taxes can be avoided depending on the laws of each state. One only needs to look at a company like Amazon and this idea becomes crystal clear as to its economic implications.

Things change, and that includes the public's buying patterns in both good and bad times. However, the figures do make one wonder how much local and state taxes will be climbing to off set this change in preferences (no less when sales on the internet will be taxed...the ultimate coup de grâce).

Fib

Good point Fib. I am amazed how long internet sales have gone without being taxed already. That being said, I would expect lack of sales tax from internet sales are a small part of those double digit drops.
I'm also amazed how long newspapers have gone on allowing free access over the internet. Sure there are ads but, so are there ads in the hard copies.
The pattern seen in the inner chart of the degree of shortfall in each state is almost a mirror of the foreclosure rates in those states.

Edited by milbank, 15 November 2009 - 08:13 PM.

sales taxes can be avoided depending on the laws of each state. One only needs to look at a company like Amazon and this idea becomes crystal clear as to its economic implications

Avoidance of sales taxes is a factor of unknown size, but most large outfits (Amazon, for instance) have been operating for some years under voluntary agreements to collect sales taxes whether or not they have any nexus with any given taxing state. Brick and mortar nexus is cut-and-dried, the internet is another kettle of fish. I suspect outfits like Amazon did it knowing that they might well lose in court while also knowing that they have a huge advantage over smaller firms in terms of being able to afford the expense of complying with the rules in what are currently thousands of taxing jurisdictions.

States were upset that they were losing revenue when their coffers were bulging, so they will certainly continue to pursue this now that most of them are broke. Much easier than trying to enforce the "use" tax side of sales and use taxes as about the only use taxes collected are on stuff that must be registered with a state like motor vehicles.

Another minor factor could be slightly lower compliance by businesses at the margins who under-report sales or somehow just never get around to obtaining a tax permit and filing returns. If the states with sales taxes ever manage to put together a national compact that requires collection regardless of nexus, the compliance problems will be absolutely huge.

Not only did Amazon have the best price on my new 50 inch plasma, they also had free shipping, no sales tax and they threw in a matched Blu Ray wireless DVD player. Why buy locally? (local anymore isn't mom and pop - its Wal Mart or Target - I used to try and support the true local businesses). That said, between online sales tax revenue losses, declining real estate value and loss of real estate tax revenue and high unemployment, state tax revenues are in free fall in most states. California is the worst, Florida not too far behind. Budgets were bloated. So a recession, while painful, is always helpful to clear out the clutter. Ultimately taxes may have to be raised but it won't be a popular ballot item unless there is a jobs recovery and stabilization of real estate. BTW, none of that may have anything to do with stock prices. In my lifetime, reflation of the banks and Wall Street always preceded the economy as a whole. I doubt this time will be different. mm

I wonder if it occurred to John that online shopping is taking a larger and larger chunk of retail sales over the last couple of years?
Fib

Then how do you explain double digit revenue drops in states like Oregon
which have NO SALES TAX?

Personally I do not buy anything on-line like clothes, shoes, golf clubs, etc.
I want to try them on for size and feel first. Every shoe I ordered on-line
had to be returned due to bad fit. And that is a BIG hassle. There may not be
the sales tax but there is S&H cost which is usually way more than the sales tax
for items under $100.

But I do buy books, movie DVD's and some electronic stuff on-line which are standard
items. But this is strictly convenience of finding the item easier on-line than in stores.
A DVD costing $10 has a S&H cost of $3, while sales tax is 80 cents.

Many times I will order stuff from Wal-Mart on-line and have it delivered to
the nearest store and save the Shipping & Handling charges but pay sales tax.

Edited by pdx5, 16 November 2009 - 12:38 AM.

Not only did Amazon have the best price on my new 50 inch plasma, they also had free shipping, no sales tax and they threw in a matched Blu Ray wireless DVD player. Why buy locally?
mm

Based on your mode of operation...I can see why commercial real-estate will be the next bubble to burst

Edited by pdx5, 16 November 2009 - 12:42 AM.

Then how do you explain double digit revenue drops in states like Oregon
which have NO SALES TAX?

I guess...the same reasoning of those states that do charge a sales or use tax:

Either spending is being curtailed; there is selectivity on big ticket items being purchased (durable goods); or purchases are being made out of state where these same taxing revenues are lost.

And just to be clear, there are no state sales taxes in Oregon, but municipalities are allowed to impose them.

At any rate, all I was pointing out was that if too large of a tax is imposed, people will go out their way to find ways to avoid paying them which was the crux of the article. As an additional example, a lot of folks purchase their smokes from Indian Reservations because of these type of savings. People will also cross state or county lines to receive such benefits as well. So if there is anyone to blame in all of this it comes down to the politicians themselves who seem that in order to balance their budgets is far better to tax than to cut their spending.

Fib

Then how do you explain double digit revenue drops in states like Oregon
which have NO SALES TAX?

I guess...the same reasoning of those states that do charge a sales or use tax:

Either spending is being curtailed; there is selectivity on big ticket items being purchased (durable goods); or purchases are being made out of state where these same taxing revenues are lost.

And just to be clear, there are no state sales taxes in Oregon, but municipalities are allowed to impose them.

At any rate, all I was pointing out was that if too large of a tax is imposed, people will go out their way to find ways to avoid paying them which was the crux of the article. As an additional example, a lot of folks purchase their smokes from Indian Reservations because of these type of savings. People will also cross state or county lines to receive such benefits as well. So if there is anyone to blame in all of this it comes down to the politicians themselves who seem that in order to balance their budgets is far better to tax than to cut their spending.

Fib

To look for a lower cost item is natural whether the savings come from tax or some other aspect of the price. I don't think the size of the tax determines whether or not some people will find a way to avoid paying it as much as with the degree of ease and cost effectiveness. Without free mailing, paying sales tax is still cheaper in any state.

Regarding cigarettes, some states like New York and, I believe, New Jersey are cracking down and demanding that Indian reservation cigs be taxed. I believe the reservations won't send to New York state anymore. As far as crossing state lines, folks have been going down to Virginia where I grew up, to load up on smokes forever because being a tobacco growing and cigarette manufacturing state, they have always been cheaper as it is in most cigarette manufacturing states.

Edited by milbank, 16 November 2009 - 10:07 AM.