Lawmakers in New York are bathing in a pink glow of public goodwill after voting last week to repeal their tax on tampons, making them and other feminine hygiene products exempt from state sales taxes.
New York joins Maryland, Massachusetts, Minnesota, New Jersey, and Pennsylvania as states that have enacted similar tax exemptions, in addition to Canada. Repeals are also under consideration in other states including Rhode Island, Connecticut, Illinois, and California.
For some, it signaled a victory for common sense, especially when state tax codes have been known to carve out exemptions for some peculiar items. For others, the move raises a number of questions about the viability of lowering the tax base.
"To consider that we exempt cupcakes and circus performances from the sales tax in New York State, but not sanitary napkins and tampons--products women depend on--is beyond comprehension," New York State Senator Sue Serino, a Hudson Valley Republican, said.
But that's not necessarily a fair comparison. The examples of exemptions Senator Serino uses fall under different portions of the tax code. The reason why female sanitary products are exempted under the New York law is because the state now deems them a necessity for women, and products that qualify as necessities are not taxed.
That word necessity, though, leaves itself open to quite a bit of interpretation, and it's one of the reasons why other states have been slow to join these six states in this effort.
I recently spoke to John Mikesell, Chancellor's Professor at Indiana University. He is an expert in governmental finance, specializing in sales and property tax policy and administration and public budgeting systems. He told me that the issue of exempting tampons prompts a very interesting debate about sales tax and its role in society.
"Necessity is really a subjective concept," he explained. "One person's necessity is another person's luxury. The sales tax is ideally a general tax on personal consumption and whether particular spending is viewed as necessity or luxury should not be relevant"
But that ultimately is the debate the repeal of this tax has sparked. Just what is necessary, and what could that be extended to in light of this new revelation? And if we open up more products to be exempted under the necessity provision, do we run the risk of eroding the tax base too much to raise enough revenue?
According to Professor Mikesell, the move to stop taxing feminine hygiene products in some states likely has more to do with the politics of public perception than it does with economic planning.
"The most important factor in any sales tax is the ability to generate revenue without doing a great degree of harm to society. There is no data readily available regarding the economic impact of taxes on feminine hygiene products, but I suspect that even for low income people, it's a relatively small percentage of household income.
"The bigger issue is the constant expansion of the service sector, and the inability of elected officials to respond to that continued expansion. As a result, many states have shown an extreme reluctance to cover household services in the sales tax. Giving away the tax base is the way to get votes, plain and simple. With an issue like this, which generates a great deal of publicity, a relatively small exemption can generate lots of attention, but the bigger sales tax problems are elsewhere."
Following Professor Mikesell's logic, you have to wonder where the tipping point will be as politicians at both the state and federal levels court new ways to cast themselves as pro-consumer, pro-business tax-cutting machines. Ultimately, a tax cut in one place is sure to crop up someplace else.
"As we keep narrowing the base, the only way we can maintain revenue is increasing the statutory tax rate. It used to be a six percent statuary rate at the state level was really rare, and now we have states that are over seven percent. When that rate gets too high, it compromises our ability to administer it properly, because it becomes more attractive to evade the tax," Mikesell said.
Getting the equation right between what's fair and what's in a state's economic best interests is a difficult balancing act and one that we're sure to see a lot more debate about as we enter election season.