Wal-Mart and local public finance

Chris Lawrence directs our attention to a couple of anti-Wal-Mart (or at least pro-Mom and Pop) columns.

Dallas Morning News columnist Rod Dreher and Clarion-Ledger columnist Eric Stringfellow both travel down nostalgia lane to sing the praises of the local market over Big Bad Evil Wal-Mart. Dreher focuses on the social fabric argument, but touches on revenues as well:

People shopped at the impersonal supermarket for years, but now many of them drive over to the next town to buy groceries at the Wal-Mart Supercenter, where the aisles are wider, the lighting brighter and the product selection more dazzling.

With them go the tax dollars that ought to be supporting my hometown but aren’t.

Why should these tax dollars be supporting his hometown? The town housing Wal-Mart bears the externalities of hosting the retailer; shouldn’t they get the tax dollars it generates? And, while the property taxes may remain local, the bulk of sales taxes are generally shipped off to the state capital and redistributed back to localities on the basis of population.

Actually, this part of Dreher's argument makes a little more sense than Chris gives it credit for.

The manner in which sales taxes are handled depends on the state. I don't know how they do it in Texas, but in Missouri, counties and cities levy their own sales tax on top of the state sales tax. While the state collects the local taxes, the local government gets it all (less a handling fee). The upshot is when local residents go to the next town to shop, the town they live in loses tax revenue that will most likely be made up by increasing property taxes or reducing services. (Yeah, I know. They could also eliminate waste. But I worked in local government for fifteen years; that's not what they do.). Unlike Dreher, I'm not willing to say that this ought not happen, but it does present a problem that local governments have to deal with. And local governments don't necessarily have to do anything wrong to get in that situation. It may be as simple as the fact that a community wasn't large enough to land a Wal-Mart and the next town over was.

Now, about that externality argument. One result of a system like that in Missouri is that towns that are situated to be a trade center tend to have high sales tax rates and low property tax rates. Why pay the full cost of your own public services when you can export much of the cost to people who live elsewhere but have nowhere else to shop? The town I worked for was like that. Local officials made the externality argument, although they didn't call it that. They would say, "These people come to town and drive on our streets. Why shouldn't they pay taxes?" That's true. However, there is a flipside to the argument: if the city had to rely on only its own residents to provide a market and labor force for local businesses, the retail sector would be much smaller and sales tax revenue much lower. They might not have that big Supercenter if it weren't for all the people who come to town to shop. So it cuts both ways.

After saying all that, I'll say this. I grew up in a small town in Southeast Missouri and I'm old enough to remember shopping in that town before it had a Wal-Mart. We had a couple of hardware stores, a mens store, a dress shop, a "department store," and a couple of what we used to call "dime stores." If you really wanted to go shopping you had to drive twenty miles to the next town over. Or order something out of the Sears catalog. So getting a Wal-Mart probably led to more local dollars being spent locally, rather than less.

And you had so much more to pick from. Going into a Wal-Mart was amazing back then. I think a lot of the resistance that Wal-Mart has seen in recent years is a result of moving into towns large enough that people have always had a relatively good shopping selection.

So, on net, the local public finance impact of Wal-Mart on small town America is uneven. Towns within a certain size range, like the one I grew up in, have been helped. On the other hand, Wal-Mart has probably hastened the decline of even smaller towns. But so has increasing productivity in the agriculture industry. Actually, that's probably had a larger effect than Wal-Mart. Where's the clamor to return to plowing with mules? Why is there no nostalgia for that?

Posted by Chip on June 28, 2005 at 05:56 AM
Comments
Note: Comments are open for only 10 days after the original post.