- The Washington Times - Sunday, August 3, 2008

ANALYSIS/OPINION:

The Rev. N. Darnell Smith, pastor of the Macedonia Missionary Baptist Church in Albuquerque, N.M., says his parishioners have faced hard economic times before, so “we already know how to make it with nothing.”

Whenever they can get a little financial relief from the government, such as the state’s annual sales tax holiday geared to back-to-school shopping, “we really appreciate it.”

New Mexico is among the 13 states that, along with the District of Columbia, provide sales tax holidays designed to give parents a break and retailers a boost in this teetering economy. Some states, such as Florida and Maryland, had to suspend the popular program this year because lower revenue had left their budgets too tight.

“Everything is taxes. We’re so overtaxed here. We just got rid of food taxes last year,” Mr. Smith said of this battleground state in the 2008 presidential campaign.

However, Mr. Smith said he also realizes the short-lived break on taxes on clothing, school supplies and some electronic equipment “has its advantages and disadvantages,” similar to the presidential candidates’ temporary tax-relief fixes to offset rising energy costs.

Political ploys or not, it’s unclear what effect these One-Hit Wonders - like sales-tax holidays or federal tax-rebate stimulus packages - will have on consumer confidence, and by extension, the economy and, in turn, on the fall elections.

Earlier this summer, Sen. John McCain, Arizona Republican, proposed a gas-tax holiday from Memorial Day to Labor Day, in part to help families pay for $4 a gallon gas for their vacation treks. That’s if you could afford to go further than your back yard. The idea, also supported by then-Democratic contender Sen. Hillary Rodham Clinton, was denounced by critics as a political gimmick and by economists as an unsound economic policy.

By some estimates, Mr. McCain’s holiday may have created a $3 billion headache in the transportation fund, which pays for highway infrastructure and the jobs to maintain them. This week marked the first anniversary of one result of infrastructure neglect - the I-35W bridge collapse in Minneapolis that killed 13 people and injured 145 more.

Campaigning in the hotly contested state of Florida on Thursday, Sen. Barack Obama of Illinois proposed a $1,000 “emergency” tax rebate to help Americans struggling with energy costs. To offset the cost, he proposes a windfall-profits tax on the oil industry.

Beware the ripples in the pond. Guess how that may also come back to haunt consumers.

“McCain’s idea is a one-time thing, and even Obama’s is a one-time thing, but you get more from it,” Mr. Smith suggested. Even so, he predicted the candidates’ temporary tax-relief proposals will “do nothing positively to the election [results].”

That assessment may come as bad news to the presidential candidates and other politicians at every level of government pushing these One-Hit Wonders.

Even President Bush’s $150 billion stimulus package provided only a temporary jump-start to the nation’s economy, according to early indications, which is why some in Congress are considering a second relief package.

Is it any wonder the approval ratings for the deadlocked Democrat-controlled Congress are so low, only a hair’s breadth above the unpopular Republican president?

While the Democrats and the Republicans wrestle over long-range solutions, like offshore drilling, everyday folks, like Mr. Smith’s parishioner “Cyrette,” a single mother, need help for their wallets yesterday.

So do retailers and small businesses. J. Craig Shearman, spokesman for the National Retail Federation, told the Associated Press that he has heard of sales gains of 10 percent to 100 percent during these tax-holiday periods, but think the actual number is somewhere in between. For consumers, Mr. Sherman said, the holidays may have significance greater than any actual savings. It’s the idea simply of “not paying sales tax.”

“Americans have hated paying taxes all the way back to the Boston Tea Party,” he said.

Indeed, something as simple as a 2-cent tax break has the possibility of altering consumers’ gloomy outlook fueled by the-sky-is-falling news reports. And boosting consumer confidence, which is at a historic low point, is key to turning around the economy.

While he is not optimistic of its economic benefits, Christopher McCarty, survey director of the University of Florida’s Research Center, agrees that the sales-tax holiday “is a nice thought.”

But Mr. McCarty pointed out that last month the Consumer Confidence Index hit an all-time low - down six points to 57. And even so, lawmakers couldn’t afford the back-to-school themed sales-tax holiday this year. Florida has been especially hard-hit by the horrific housing market, Mr. McCarty said, and until tanking prices in that sector stabilize, which he sees beginning to happen, consumer confidence will remain low. So, people will hold back on spending.

“The problems are bigger and more fundamental than stimulus checks can surmount,” he said of the one-shot economic booster. He puts the state sales-tax holidays, the gas-tax holiday and the tax credit “all in the same basket.”

People are holding back, but eventually they are going to have to spend money on a new car or appliances. Consumer goods do not last forever, and neither do recessions, such as the mini-recession that we experienced with little fanfare in 2001, he noted.

Clearly not an alarmist, Mr. McCarty is not ready to concede to the drumbeat of doomsday predictions about the nation’s economy. Echoing Mr. Smith, he said, “We’ve been here before.”

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