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HIDDEN TAXES: Shoppers at an Alabama Target take advantage of a sales tax holiday.
Sarah Cole/AL.COM/Landov
HIDDEN TAXES: Shoppers at an Alabama Target take advantage of a sales tax holiday.

Back-to-school taxes

Money | Government-manufactured costs drive up prices for everyone

Issue: "Back to School," Sept. 7, 2013

The back-to-school season is already painful enough for many families. College tuition grew 3.9 percent last year. That’s the smallest rise in 40 years, but still twice the rate of inflation. Tuition costs vary widely, but at the high end is Columbia University, which last year charged $47,246 for tuition and fees alone.

Given those gigantic costs, the import taxes we pay on back-to-school clothes, backpacks, and supplies may not seem like a lot, but they add insult to injury, and they also add up. According to Sally Platt of the Heritage Foundation, in 2012 alone the U.S. government collected about $30 billion in import taxes—many of them on common back-to-school items. “These hidden taxes are levied on everything from jeans to glasses to food,” she said. According to Heritage, tariffs account for more than 20 percent of the cost of sneakers, 16 percent of the cost of jeans and T-shirts, and 17 percent of the cost of the backpacks in which students haul around all their overtaxed items. “They inflate the cost of everyday goods and make August a more difficult time for American families,” Platt said.

And this is before state and local governments tack on sales taxes. In recent years, some states have offered tax-free weekends, but John Hood of the John Locke Foundation says these tax holidays are “gimmicks, not rational tax policies.” He said, “Taxing families more throughout the year in order to give them a break once a year does them no favors. Retailers also don’t sell more clothes, computers, notebooks, or pencils because of tax-free weekends. It just shifts the timing of the transactions.”

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Hood said it makes more sense to do what North Carolina and other states did this year: “Eliminate such gimmicks and simply reduce the overall tax burden families have to shoulder.”

Dow props

Charles Evans
Brian Cassella/MCT/Landov
Charles Evans

For a half-century, Wall Street operated by the maxim, “Sell in May and go away.” That usually meant a quiet summer on the markets.

This year, not so much. Between June 24 and the end of July, the Dow went up almost exactly 1,000 points, more than 6.5 percent. On Aug. 1, the Dow was up 16.5 percent for the year.

Then came August, and the markets drifted, in part because Congress was not in session, and in part because both the Dow and the S&P 500 were near record highs, with little upside left.

The only real fireworks in August came when Federal Reserve official Charles Evans said economic growth should let the Fed reduce its $85 billion in monthly bond purchases later this year. Evans is president of the Chicago Federal Reserve Bank and a voting member of the Federal Open Market Committee, the policy-making committee of the Fed, so his words carry some weight. He expects growth in the second half of the year to pick up to an annual rate of 2.5 percent and climb above 3 percent next year. He said the Fed could then taper its asset purchases in several stages, and likely end them by mid-2014.

In the 24 hours after he made his pronouncement on Aug. 6, the Dow dropped 100 points, and it continued to drift downward for another week, reminding us again that the $85 billion a month in government manipulation has made the free movements of the market anything but truly free. —W.C.S.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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