When Small Business Saturday got started in 2010, it was a wonderful effort on asking the consumer at least one day a year to shop “small”. In the early years, American Express even went as far to give a $25 incentive to the consumer.
But, why shouldn’t we give an incentive every day of the year for consumers to shop at small businesses ?
This is exactly what they do in South Africa. When I was visiting this past year, I noticed that some stores collected a 14% sales tax (called a VAT) https://en.wikipedia.org/wiki/Value-added_tax while others did not. When I inquired why, they said that in their country if a small business is under $1M Rand (about –$730K in sales per year), then they were exempt from collected sales tax as an incentive for consumers to shop with them!
I propose this to be implemented in the United States for all small businesses under $500K in annual sales. This could help over 75% of the small companies.
Think about how this would work in practice. For many small businesses, if they did not have to collect sales tax, then they automatically would have a price advantage of whatever their state tax was. (In California for example, it’s 7.25%). This might get the average consumer to think twice about buying from a big box retailer like Amazon and look to source it from a small business where they did not have to pay sales tax. What the state government would lose in revenue could be made up by collecting income tax from the increased profits from these companies directly or profit that would flow through their shareholders personal tax returns. It would also help these small businesses to grow and employ more people that would pay increased income tax.
If we are going to grow our economy and GDP beyond the average 2.5% a year, we need to implement radical changes like this on how consumers buy products. This is one place to start.
