Retail sales may still be good overall. But the COVID World makes for huge disparities

Another month of improved retail sales also continued to show the changes in American spending habits in the COVID World. On the positive side, it was a good overall report, which shows consumer spending continued to rise as Q3 2020 ended.

Advance estimates of U.S. retail and food services sales for September 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $549.3 billion, an increase of 1.9 percent (± 0.5 percent) from the previous month, and 5.4 percent (± 0.7 percent) above September 2019. Total sales for the July 2020 through September 2020 period were up 3.6 percent (± 0.5 percent) from the same period a year ago. The July 2020 to August 2020 percent change was unrevised at up 0.6 percent (± 0.2 percent).

Interestingly, overall retail sales are now up 3.7% from where they were in January, the last month before sales began to decline. And core retail sales are also above 0% for the year.

The biggest sector gaining in September was autos and auto parts (up a seasonally adjusted $4.0 billion), continuing strength in that sector that started once the economy reopened in many places in May. There was also a boost from some beaten-up brick-and-mortar sectors such as clothing stores (+$1.9 billion), general merchandise stores (+$1.1 billion) and food services/drinking places (+$1.1 billion).

However, even though clothing stores and bars/restaurants had decent seasonally adjusted gains for September, their level of sales still remain far below where they were in January, and sales at gas stations also continue to be down more than 15%.

On the flip side, while overall retail sales were up by 1.9%, home and garden stores were up only 0.6% for September, non-store retailers such as Amazon.com were up 0.5%, and grocery stores barely rose at all. But don't be fooled by the low growth for 1 month, as it illustrates that these sectors are maintaining the higher levels of business it has drawn since COVID-19 broke out.

This change to home-related purchases and online shopping resulted in news of a significant income tax cut for Wisconsinites this week. How? Because of a bill dealing with online sales that was passed well before COVID World began, and the sector boomed. Here's the Legislative Fiscal Bureau's explanation of that provision.

This memorandum provides information for tax year 2020 on the Department of Revenue (DOR) certification for individual income tax rates(attached to this memorandum).Procedures established under 2013 Act 20, as amended by 2017 Act 368 and 2019 Act 10, require DOR to certify lower tax rates for the two bottom individual income tax brackets to offset the increased sales and use tax collections attributable to remote sellers and marketplace providers.

For tax year 2020, the individual income tax rate reduction is based on the sales and use tax collected from remote sellers and marketplace providers during the 12-month period from October 1, 2019, to September 30, 2020. Under Act 10, the tax reduction is to be divided into two equal components and targeted as rate reductions to the two bottom tax brackets. State law requiresDOR to estimate the amount of additional sales tax collected, determine the amount of the tax ratereductions for the two bottom tax brackets, and certify and report its determinations to the Joint Committee on Finance, as well as the Governor, the Secretary of the Department of Administration (DOA), and the Legislative Audit Bureau (LAB), no later than October 20, 2020. Act 10 required the same procedures to occur in 2019 when determining the tax year 2019 income tax rate reduction.

It was estimated under Act 10 that increased sales and use tax collections from remote sellers and marketplace providers of $119.3 million would be available for income tax rate reductions in tax year 2020. However, a significant amount of taxable sales that had previously occurred in-person shifted to online purchases as a result of the coronavirus pandemic. On October 20, 2020, DOR estimated the increase in sales and use tax collections from remote sellers and marketplace providers between October 1, 2019, through September 30, 2020, was $257.3 million. The estimated increase in sales tax collections is: (a) $138.0 million higher than the Act 10 estimate ($119.3 million); and (b)$178.1 million higher than the amount certified by DOR in 2019 ($79.2 million).

This income tax cut will hit for this tax year, and only apply to the lowest 2 tax brackets in the state, so it makes the state's income tax structure more progressive, which means that the working class will get a similar level of tax cut that the middle class and upper classes might get.

And it's much larger than expected mostly because the COVID World encouraged more Wisconsinites to buy items online this year. From a budgetary standpoint, it's also interesting because the state's coffers benefitted from higher sales taxes that resulted from these online sales in the 2020 Fiscal Year (particularly March through June), but most of the bigger income tax cut isn't going to go out of the Department of Revenue until Wisconsinites file their taxes in early 2021. Which means that the good budget news of FY 2020 could translate into not-so-good budget numbers in the second half of FY 2021.

Like other aspects of our world in October 2020, the overall retail sales numbers may seem little different from where we were at the start of this year. But the COVID World has changed plenty in terms of where that money is being spent and those changes are going to continue to be felt for good and for bad in a whole lot of aspects of our lives.