The big 7% Off Sale! An annual folly for Iowa

Now, really, who’s going to rush to a 7%-off sale? Any serious shopper looks for a better deal than that.

Nevertheless, Iowa’s annual “Sales Tax Holiday” runs Friday and Saturday, promoted in media and by some politicians.

It’s one of the most ridiculous pieces of Iowa tax policy. It’s expensive, it’s poorly targeted, it may actually discourage better deals for shoppers, and it’s about as confusing as could be.

It’s also ironic, because it’s often billed as a “back to school” event. But it diverts state support from, among other things, education.

The “holiday” cost $4.6 million in FY 2020, now about $5.7 million with inflation.[1] Properly used, that revenue could offset a bit of Iowa’s costs for private-school vouchers, which run about $8,000 per kid.[2] Those funds could pay for 700 of the more than 40,000 students who will be using taxpayer dollars to attend private schools this fall.[3]

Certainly there are other valid comparisons for the use of that public money, but vouchers make a good comparison because they will largely benefit people who already could afford private school. Likewise, this two-day break helps families that don’t need the help, and to a greater degree than those who do. While a family that has chronic cash-flow issues might benefit a little — and Iowa should be better shaping its tax policies to can help them — a family with a six-figure income doesn’t need the break and will get it anyway.

Think of it this way: Someone can save $1.40 on a $20 T-shirt, but that’s still a pricey purchase for some families. Others can easily afford that price and pile up 10 or 20 shirts, and take the taxpayer subsidy on top of it. Yes, more and more like school vouchers all the time.

Iowa has a 6% state sales tax and most cities add a 1% tax. That 7% is not paid on a selected list of clothing and shoes during the two-day event — but not all items are exempted. So, not only do shoppers count on a lesser deal than the market might provide — maybe 10% off, 25% off or even a buy-one-get-one sale — but they (and the businesses) need to consult a two-page list from the Department of Revenue to see what counts.

Bowling shirts yes, bowling shoes no. Coveralls yes, safety clothing no.  Hiking boots and walking shoes yes, tap shoes and ballet shoes no.

They also need to be aware of the rules on cost (no one item over $100, but as many as you want under $100), and how the items are advertised and exchanged or returned.

Iowa is among 18 states with such a gimmick.[4] Sales taxes claim a greater percentage of income from low- and moderate-income Iowans than from those at higher incomes, and are an increasing share of Iowa’s state budget revenues in an unrelenting drive to cut and potentially eliminate the income tax. While Iowans should invite changes in tax policy away from such regressive choices, repealing this annual folly would be welcome.