This is no time for a tax holiday

November 12, 2001|By Neal Peirce

WASHINGTON - Just when the country ought to be getting serious about its economic security, along comes the proposal that Washington decree a 10-day national sales tax holiday, starting the day after Thanksgiving.

States and localities, promised later federal payback, would be free to take or reject the holiday. (How, politically, could they refuse?)

The National Retail Federation is red-hot for the idea.

A group of senators, from Washington Democrat Patty Murray to Pennsylvania Republican Rick Santorum, have endorsed it.

And the White House is reportedly interested. One can easily see the holiday ending up in the economic stimulus bill that's still being debated by Congress.

But Camille Barnett, former city manager of Washington, Austin and other cities, tags it a "cockamamie" idea - "Why take the best shopping days of the year and give away the taxes on them?"

What's more, Ms. Barnett says, consumers might simply hurry to buy big-ticket items for which sales taxes really matter - autos, furniture and the like - and then curtail their spending afterward.

The cost wouldn't be trivial: $6.5 billion out of the federal budget.

The timing is unfortunate - just when a tidal wave of terrorism-fighting costs is looming.

View it all from the state and local angle and more doubts surface. Most state budgets are already skirting red ink because of sharp revenue drops, just as states must contend with new security outlays for guarding bridges, nuclear power plants and more.

Cities have it even tougher in a nation newly vulnerable to terrorism and the thousands of scare reports it generates.

"911 generates a call to the local police and firefighters - that's where the response comes from," Tulsa Mayor Susan Savage observed on the The News Hour with Jim Lehrer recently. Atlanta's Mayor Bill Campbell cited "enormous costs associated with the 24-hour around-the-clock security" that cities must now provide.

And the long-term impact, Philadelphia Mayor John Street notes, will go far beyond overtime costs for police, firefighters and medical emergency personnel. Threats such as bioterrorism or nuclear terrorism, he suggests, will force cities to make very new investments in technologies and scientific expertise.

Terrorism-triggered outlays, city by city, are already mounting. Baltimore is facing a prospective $14-million terrorism-defense-related deficit. Yet Mayor Martin O'Malley laments that when he and his fellow mayors raise the issue of their new costs with federal officials, "they just roll their eyes, as if we're one more lobby group trying to capitalize on the crisis."

Maybe that explains how Washington politicos and lobbyists could conceive and push, in the midst of national crisis, an unproven "let the good times roll" idea like a sales tax holiday.

A sounder idea would be to turn a chunk of a national stimulus package into temporary revenue sharing for state and local governments.

Without revenue sharing, says California economist Stephen Levy, we'll likely see states, cities and counties forced to reduce spending, canceling the impact of any national anti-recession efforts. Plus, short-term revenue sharing would help states and localities maintain such services as education and infrastructure, critical for the country's long-term economic prosperity.

The National League of Cities, on a similar tack, is now asking for temporary direct federal help to assist displaced and unemployed workers, plus assistance on imperiled airport bonds and a range of security measures. The cities are especially anxious to see $7 billion or more designated for critically important water and wastewater construction projects that are ready to start.

"For every billion dollars we spend on infrastructure improvement projects, 42,000 jobs will be created, helping American families pay the bills and save for the future," says Nevada's Harry Reid, the Senate majority whip.

The bottom line is that the double hit - recession and terrorism - requires the federal government, controlling the most flexible and powerful taxing system of all, to provide timely backup for our state and local governments.

The answer may be revenue sharing, or infrastructure help. But finding an answer is critical. After all, the states and cities aren't some other "them." They're us.

Neal Peirce is a syndicated columnist. His e-mail address is nrp@citistates.com.

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