CONSUMERS: Hangover

A thumping headache last week followed the shopping spree which sent U.S. citizens scurrying into stores to buy before the stiff new Federal excise taxes clamped down, Oct. 1. They woke to find that, on purchases made after the new tax went into effect, they not only had to pay the increased tax but several times the tax increase, because of the retailers’ time-honored system of price markups.

On liquor, which caused the biggest rush, the tax increase is a flat $1 a gallon. For a quart of whiskey the additional tax amounts to 25¢; for a fifth, it comes to 20¢. But whiskey buyers this week found that prices had gone up as much as 50¢ a quart, 35¢ a fifth. On radios, the additional tax is 4½%, bringing the total Federal tax to 10%. But radio prices are up a full 10% or more.

Standard retail markups run as high as 50% of the wholesale price, and higher. A refrigerator costing a retail dealer $75 might sell for $100. If the tax increase (10%) were merely passed on, the new price to the customer would be $107.50. But with tax added to the wholesale cost, and the markup pyramided on that, the price the customer pays is $111.

Price Administrator Leon Henderson last week took note of this inflationary threat. Price rises, he warned retailers, “should in no case reflect more than the actual dollar amount of the . . . excise tax.” But retail merchants paid him little mind. Most of them went merrily on their way, marking up tax and all.