Tax-free week: Is it as good as it seems to be? - WFSB 3 Connecticut

I-Team Investigation

Tax-free week: Is it as good as it seems to be?

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If you're getting your children ready to go back to school, you may be trying to get your shopping done this week while most clothing and footwear is sales tax-free.

The week-long sales tax holiday is always given all sorts of publicity by politicians statewide who encourage consumers to hit the stores to save money and help the economy.

But chief investigative reporter Eric Parker took a closer look at the tax-free promotion and said the deal may not be as good as advertised - for consumers or for the stores.

Stores are busy, and retailers are making sure you know that it's time to do your patriotic duty for the economy while thumbing you nose at the sales tax. In fact, Gov. Dannel Malloy was in Bristol last week, hoping the sales tax the state is giving up would break records.

"Although we estimate that it could cost us $7 million in revenue, we want everyone to be aware of it, and if it ends up costing us 8 or 9, so be it," Malloy said.

But budgets are tight. In fact, in his 2011 budget, Malloy proposed eliminating the tax-free week to save money. The outcry came from both Republicans and Democrats and the week was saved. And now even the man who was going to scrap it is holding press conferences reminding taxpayers to spend and spend now.

But the I-team wanted to know - does it really help?

"From a business prospective how big of a deal is it?" Parker asked Quinnipiac professor David Cadden.

"It's not much," he replied.

Cadden, from Quinnipiac's School of Business, said the actual impact of Connecticut's tax-free week is pretty small. Because it's limited to clothes and shoes under $300, the prospective savings is limited too. Even with back-to-school shopping for a minivan full of children, there's only so much a family can save. He says it's the kind of program politicians love because beating taxes makes taxpayers smile.

"Everybody loves an opportunity to cheat the government in their own way," Cadden said. "It's something they can point to and no politician is going to say, 'I'm going to vote against this.'"

So if consumers aren't saving all that much, perhaps they're still helping the economy through increased spending.

But some recent studies call that into question too.

The Institute on Taxation and Economic Policy calls the week a "boondoggle," saying stores often cut back sales this week since consumers are likely to buy anyway and that the impact on the economy is negligible too.

They said consumers will still spend the same amount on overall back to school shopping, but just shift their spending to hit the tax-free week. Several weeks of robust sales turn into one really good week and several smaller weeks.

Cadden said it's important to consider that group's anti-tax mission, but says a week like Connecticut's is likely to do little but change timing.

"They may slightly increase their purchases, but I think it's much more closely tied to what they have to get for their children," Cadden said. "The savings is a nice element of it, but I don't think it generates an appreciable increase in sales."

And even the non-partisan Chicago Fed doubts the impact these weeks can have, saying except for a small increase in the sales of children's clothes, their study in 2010 showed almost no impact on the economy.

But Malloy said he thinks the studies have it wrong.

"There is an impulse part of buying, especially in the clothing market, so I think it may compress some of that but it also encourages to get into the marketplace, and I don't know if you shop like I do, but I like a bargain," Malloy said. "So if I can put no tax and a promotion and lower cost together, that's a pretty good way to do it."

So what are stores actually seeing?

The I-Team went to retail giant Walmart. They have stores in each of the 17 states that offer a sales tax holiday and say the effect is mostly timing instead of any huge boost in sales.

"Certainly some customers who might have shopped earlier or later might do their shopping during that weekend," said William Wertz, of Walmart.

So if Connecticut politicians want to be able to say they gave this tax-free week to the voters, could they make changes to make it more effective?

Cadden said Connecticut should just look north. In Massachusetts the sales tax holiday is just one weekend, but almost anything is exempt up to $2,500.

"Recently Massachusetts, when they had their tax holiday, may have generated as much as $500 million in additional sales," Cadden said.

Walmart said they saw a big bump in Massachusetts, especially when it came to electronics, where the substantial sales tax savings might lead to an impulse buy.

"If they had electronics, you guys would sell it?" Parker asked Wertz.

"We'd love to see it, yes," he replied. "Anything that helps the customer is something we're interested in, and two week ago in Massachusetts, certainly a lot of customers were buying laptops and notebooks because they could get the tax break."

So hit the stores, but do it for back-to-school because it appears the savings for you and the boost for the economy might be less than politicians want you to think.

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