If you're interested in how small business groups view Wal-Mart, and you want to know more about the resistance to Wal-Mart entering NYC, The Neighborhood Retail Alliance Blog is the place for you. Their latest post talks about the sales tax in NYC; it reveals what the group is about, and the nature of the arguments it uses against Wal-Mart:
Which brings us to the Staten Island Wal-Mart controversy. Before the Mayor, Congressman Foscella, or other elected officials try to convince folks that building box stores will prevent retail leakage to New Jersey they better first level the playing field by dramatically reducing the cost of doing business in NY. If they don’t and a Wal-Mart is built on the South Shore, than we predict you’ll find as many Staten Islanders still shopping in Woodbridge, NJ as you’ll find at the outlet on Richmond Valley Road... Islanders will continue to flee and instead of keeping customers in New York, the Staten Island Wal-Mart will draw people in from the other boroughs. Therefore, consumer dollars will simply be transferred from existing NY retailers to Wal-Mart while the fundamental cause of the leakage will remain ignored.I agree that "leakage", meaning the dollars spent by NYC residents choosing to shop outside of NYC, could be lowered by competing with New Jersey's lower tax rates. But the idea that NYC businesses are somehow deserving of these retail dollars is, in my mind, not compelling at all.
If the Alliance has specific proposals to lower the cost of businesses in NYC, as opposed to just transferring costs to other types of businesses, I'd really like to hear them. But wouldn't any such proposal also lower Wal-Mart's cost?
Granted, lowering the sales tax would help neighborhood businesses compete against WM since a sales tax increases the relative cost of shopping at higher-price neighborhood stores. But the sales-tax is not the cause of higher pre-tax prices...
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Also see their main homepage about WalMart. I'm almost amused that they accuse Wal-Mart of routinely pricing below cost, even though (from my experience) two-for-one specials and pricing below cost are routinely used by neighborhood businesses to clear out poor-selling merchandise.
And guys, if you're going to discuss lawsuits against Wal-Mart for predatory pricing, might it not also be relevant to note which cases Wal-Mart actually won.
Posted by Kevin on May, 9 2005 at 07:56 AM
Sam wrote:Kevin-
Could you please explain this further. I don't really get what you mean by this."But the idea that NYC businesses are somehow deserving of these retail dollars is, in my mind, not compelling at all."
Are you taking issue with the idea that New Yorkers benefit from keeping their retail dollars in New York?
-- May 9, 2005 02:58 PM ∞
Kevin Brancato wrote:Are you taking issue with the idea that New Yorkers benefit from keeping their retail dollars in New York?
In short, yes, but to me there is no clear good or evil policy rule here. I think low taxes and non-profligate government spending ARE in the public interest. But taxation should always cover costs, and I have the feeling that this normative rule is being chucked by the wayside. I think of sales taxes as a bulk payment for a bulk of government-provided services.
The same logic of "the benefit" of keeping retail dollars in NYC should apply to smaller geo-poliical areas, like boroughs and even individual streets. For example, say Staten Island passed a law taxing consumers prohibitively if they purchase goods off the Island (or subsidized their SI purchases), then assuming Staten Islanders benefit from keeping their retail dollars in Staten Island, the people of Staten Island should be better off.
I find this argument is absurd on its face (especially taken to the level of only shopping at stores owned by one's close acquaintances), and think it is a mix of economic fallacies.
First, closed economies do not perform better than open economies. They just don't. One can point to local multiplier effects due to keeping money "in town", but these calculations ignore the local multiplier effects of saving money spent elsewhere, and the multiplier effects of people specializing in non-retail occupations.
Economics is all about how trade -- both local and distant -- makes people better off. Locally and internationally, closed economies -- because of law, or because of entrenched habit -- are poorer than open trading economies.
If a foreign country (China) wants to sell you a lot of cheap stuff, subsidized by their taxpayers, you can either let them or punish your own consumers. If a foreign state (New Jersey) wants to subsidize retail operation, you can either let them do so or subsidize your own retail operations.
Second, if New Jersey can actually provide retail at lower real total cost (including fewer, less costly gov't services), then there's little economic argument for keeping retail in the city. NYC is just out-competed.
But perhaps the real cost of retailing in NJ is the same as in NY. Then either the real costs of retail NJ are not being paid for in their sales taxes (in which case NYC residents shopping there are being subsidized by NJ taxpayers), or retail costs in NY are overtaxed (punishing NYC retailers and consumers), or both.
I don't know which of these "paradigms" fits, so it's hard to proceed honestly, without demaning more information.
But say that New Yorker consumers are being subsidized by New Jersey taxpayers, because sales tax rates in NJ are below the cost to their government of providing services to retail. It's unclear to me that New Yorkers benefit by refusing to accept this subsidy, or by subsidizing their own retail locally. This is equivalent to protectionism and retaliatory tariffs, which are not means to greater economic growth.
If NJ's tax rates are too low, that's their problem. If NY's tax rates are too high (not reflecting real costs), then that is NYCs problem -- and both NYC consumers and businesses are worse off than they could be.
Using New Jersey's tax rates as a pivot in the argument for lower NYC sales tax rates works politically, but it is in my mind actually an argument for redistributing the tax burden, since it does not directly advocate lowering spending.
Taking actions that look like they "level the playing field" for small business by capturing the local consumer, can easily make consumers worse off, if they have to pay for lower sales taxes with higher taxes elsewhere. An alleged "tax cut" without a spending cut is not actually a tax cut at all.
I'm taking issue with the idea that it is somehow in the public interest to always shop locally. I oppose the "keep business in the neighborhood" mentality. Business should be as business succeeds on its own merits.
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Let me put a stark example out there, to better illustrate what I wrote above.
Say New Jersey, for whatever reason, had a negative sales tax -- perhaps -1.5%; the sale of goods is subsidized out of a general tax fund, and NYC residents flock to NJ to purchase goods.
NYC retail would be devastated, but NYC consumers would be benefiting from an implicit NJ welfare program. Would it be worth it for city residents to match this negative sales tax so they can shop locally? I highly doubt it... If NYC imposed a 1.5% tax penalty on all goods bought in NJ, would this make New Yorkers better off?
I'd like to write more, but time is fleeting...
-- May 9, 2005 04:38 PM ∞
