Sales Tax: The Root Cause of "Leakage"

The Mayor’s budget was announced last week and on his weekly radio show he took the time to promote his sales tax exemption for clothing purchases under $110. He pointedly remarked that the sales tax drove New York customers to New Jersey and Connecticut. Of course he is right but his proposal doesn’t go far enough. Under Mayor Giuliani, the Economic Development Corporation did a survey that estimated that over $700 million in retail sales leak to New Jersey because of the sales tax.

Old timer Lew Powsner who owned a men’s clothing store for years on Mermaid Avenue in Coney Island used to say that each time the city raised the sales tax another mall was built in New Jersey. Where does this situation hit hardest? Why Staten Island of course where a short drive over the Outerbridge will enable you to save $25-$30 on gas, buy beer and soda without deposit, get a nice discount on cigarettes by steering clear of Bloomberg’s confiscatory $1.50 a pack cigarette tax, and save on a whole host of other non-taxed or less taxed products.

Which brings us to the Staten Island Wal-Mart controversy. Before the Mayor, Congressman Fossella, 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 (in addition, some have commented that due to the traffic it'll be easier to get to Jersey anyway). 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.

Isn’t it about time that our city’s leaders stopped their anti-small business activities? First they create one of the least hospitable retail environments in the country and then they tell New Yorkers that we need to build box stores to prevent the sales leakage that they themselves have helped to create. This goes beyond even blaming the victim. It’s is blaming the victim and then re-victimizing the victim at the same time. Just ask Staten Island small business people.

We’ll have more on this after talking to tax expert E.J. McMahon later in the week. Hopefully, he’ll post a few observations.