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There was a planet money podcast recently which discussed the effects of including a tax in the price or adding it at the register. Even though the net cost wa

There was a planet money podcast recently which discussed the effects of including a tax in the price or adding it at the register. Even though the net cost was exactly the same, including the tax in the sticker price resulted in 8% less consumption. While, as consumers, we'd probably prefer products to include the all-up cost in the price tag, from the seller's perspective, it's still in their interest to add it at the register.

maaaats 13y ago
I live in a country where the tax is always included in the price, and tipping is not seen as mandatory. So the price on the tag is what you pay. So I may be a bit biased in my "hate" for how it's in some countries, because I'm always taken by surprise at the register.
- throw_away 13y ago
  Yeah, I'm not saying that I like it, just that I understand the motivations involved. On a purely rational basis, it should make no difference (as the end-price ends up the same), so sellers should opt for customer preference, but sadly, we are not fully rational creatures.
  - mpyne 13y ago
    And on that note I think part of the difference in reaction is down to expectation. Americans don't like being "surprised" at the register either, but in the case of sales tax and tipping there is no surprise; it is assumed that will happen and factored accordingly. But if you surprise me with a $.99 dessert on my bill that I didn't actually ask for, you can bet your ass I'd raise a problem about that at the register.
  - vacri 13y ago
    It does make a tangible difference in the cash economy though. When the price tag includes tax, the prices are generally set to easy multiples of the currency. Fewer coins to cart around and manage (and no give/take a penny trays). I found it amusing in the US when I went to McDonalds and ordered three things from the 'dollar menu'... and was charged $3.24. I also found it odd that a few Americans, despite living in this system their whole lives, had trouble in predicting their costs at the register. Here in Australia there's a 10% sales tax, included in the original price. For anything above a few dollars, most prices are whole dollar amounts, and the vendor sets aside 1/11th of the price for the sales tax. What you actually pay is easy to manage and predict, though you get a receipt specifying the tax with odd numbers (due to the 11ths). Go into a supermarket and buy a carton of Foo for $2.69? It's $2.69 at the register. My gut tells me that this is why Americans are so much more vocal about tax - sales tax is a stone in their shoe. It's addition at the register makes things unpredictable (not to mention any sale that crosses a border somewhere). Here it's streamlined away, and there's no cognitive weight borne by the consumer at all.
    - tbyehl 13y ago
      What really makes sales taxes fun in the US is that they are variable in many states. If I go to my local Walmart at the start of the school year, some items I pick up may be tax-free because they are considered school supplies and there's a "sales tax holiday", others items are considered "Groceries" and will be taxed at a reduced rate, but prepared (hot) foods, booze, and non-food items are taxed at the full rate. Then there are the cities and counties that have additional sales taxes. When I lived in Germany it took me about 5 minutes to fall in love with prices being listed inclusive of taxes.
Spooky23 13y ago
Amazingly enough, other industries survive. I just bought a bunch of stuff from a deli, and somehow they appear to stay in business without tips. Tips are just a way for restaurants to displace the risk of paying labor during slack business periods.
- kenrikm 13y ago
  This! No customers no tips, cost of running the restaurant without customers is less. If tips as a way of paying employees were ever outright banned I'm sure there are plenty of smaller restaurants that would have to close.
- dghughes 13y ago
  Supposedly tips are common for jobs which rich people didn't do such as cutting hair, taxi, restaurant service. I know I often tip my butler.
  - clem 13y ago
    I find that with my household servants a Christmas bonus of passing down our secondhand possessions on Boxing Day is sufficient.
neverminder 13y ago
Where is this being practiced? I've been to pretty much every country in Europe in the last 20 years and in a conventional shop the tax (VAT) is always included in the price.
- maaaats 13y ago
  It's common in USA, because there are different sales taxes in different states. So advertised products are advertised without tax included in the price.
  - relix 13y ago
    Why are the price tags universal across all stores and all states, and centrally produced? Or if they aren't, surely each shop can print out their own price tags and add the appropriate tax then.
    - techsupporter 13y ago
      Price tags are one thing. The region-wide ads for Kroger saying "milk is on sale for $1.99/gal this week with your Kroger Card" are another. A broadcast TV ad like that might be visible in 10 or more different sales tax areas. Having worked in retail, I have several anecdotes from customers getting annoyed over even the smallest pricing discrepancies. I had one shopper complain about being charged less than the price in the mailed circular on the theory that the chosen product was of lesser quality than the advertised product.
  - FancyCashews 13y ago
    It goes further than that; a county or even a town can have a separate sales tax. You can have 9% in one county, 10% in a city inside the county, or 8% the next county over.
    - kelseyfrancis 13y ago
      And even beyond that, some governments levy different taxes on different items (e.g., lower tax on groceries), while other nearby governments may levy the same tax on everything. Further, some governments charge tax on the pre-coupon/pre-discounted price, while others tax only the actual final price. Further still, some entities like public schools are exempt from paying sales taxes in many states/municipalities. In this case, the price sign would have to show both a pre-tax and tax-included price on it, which may be the best solution anyway. Regardless, these differences are probably easiest to account for at the point of sale.
TorKlingberg 13y ago
This is because other sellers are printing the price without tax, so the price with tax appears expensive. If all prices had to include tax, then people would get used to it, and the total consumption would be same in the end.

maaaats 13y ago

I live in a country where the tax is always included in the price, and tipping is not seen as mandatory. So the price on the tag is what you pay. So I may be a bit biased in my "hate" for how it's in some countries, because I'm always taken by surprise at the register.

throw_away 13y ago
Yeah, I'm not saying that I like it, just that I understand the motivations involved. On a purely rational basis, it should make no difference (as the end-price ends up the same), so sellers should opt for customer preference, but sadly, we are not fully rational creatures.
- mpyne 13y ago
  And on that note I think part of the difference in reaction is down to expectation. Americans don't like being "surprised" at the register either, but in the case of sales tax and tipping there is no surprise; it is assumed that will happen and factored accordingly. But if you surprise me with a $.99 dessert on my bill that I didn't actually ask for, you can bet your ass I'd raise a problem about that at the register.
- vacri 13y ago
  It does make a tangible difference in the cash economy though. When the price tag includes tax, the prices are generally set to easy multiples of the currency. Fewer coins to cart around and manage (and no give/take a penny trays). I found it amusing in the US when I went to McDonalds and ordered three things from the 'dollar menu'... and was charged $3.24. I also found it odd that a few Americans, despite living in this system their whole lives, had trouble in predicting their costs at the register. Here in Australia there's a 10% sales tax, included in the original price. For anything above a few dollars, most prices are whole dollar amounts, and the vendor sets aside 1/11th of the price for the sales tax. What you actually pay is easy to manage and predict, though you get a receipt specifying the tax with odd numbers (due to the 11ths). Go into a supermarket and buy a carton of Foo for $2.69? It's $2.69 at the register. My gut tells me that this is why Americans are so much more vocal about tax - sales tax is a stone in their shoe. It's addition at the register makes things unpredictable (not to mention any sale that crosses a border somewhere). Here it's streamlined away, and there's no cognitive weight borne by the consumer at all.
  - tbyehl 13y ago
    What really makes sales taxes fun in the US is that they are variable in many states. If I go to my local Walmart at the start of the school year, some items I pick up may be tax-free because they are considered school supplies and there's a "sales tax holiday", others items are considered "Groceries" and will be taxed at a reduced rate, but prepared (hot) foods, booze, and non-food items are taxed at the full rate. Then there are the cities and counties that have additional sales taxes. When I lived in Germany it took me about 5 minutes to fall in love with prices being listed inclusive of taxes.

Spooky23 13y ago

Amazingly enough, other industries survive. I just bought a bunch of stuff from a deli, and somehow they appear to stay in business without tips. Tips are just a way for restaurants to displace the risk of paying labor during slack business periods.

kenrikm 13y ago
This! No customers no tips, cost of running the restaurant without customers is less. If tips as a way of paying employees were ever outright banned I'm sure there are plenty of smaller restaurants that would have to close.
dghughes 13y ago
Supposedly tips are common for jobs which rich people didn't do such as cutting hair, taxi, restaurant service. I know I often tip my butler.
- clem 13y ago
  I find that with my household servants a Christmas bonus of passing down our secondhand possessions on Boxing Day is sufficient.

neverminder 13y ago

Where is this being practiced? I've been to pretty much every country in Europe in the last 20 years and in a conventional shop the tax (VAT) is always included in the price.

maaaats 13y ago
It's common in USA, because there are different sales taxes in different states. So advertised products are advertised without tax included in the price.
- relix 13y ago
  Why are the price tags universal across all stores and all states, and centrally produced? Or if they aren't, surely each shop can print out their own price tags and add the appropriate tax then.
  - techsupporter 13y ago
    Price tags are one thing. The region-wide ads for Kroger saying "milk is on sale for $1.99/gal this week with your Kroger Card" are another. A broadcast TV ad like that might be visible in 10 or more different sales tax areas. Having worked in retail, I have several anecdotes from customers getting annoyed over even the smallest pricing discrepancies. I had one shopper complain about being charged less than the price in the mailed circular on the theory that the chosen product was of lesser quality than the advertised product.
- FancyCashews 13y ago
  It goes further than that; a county or even a town can have a separate sales tax. You can have 9% in one county, 10% in a city inside the county, or 8% the next county over.
  - kelseyfrancis 13y ago
    And even beyond that, some governments levy different taxes on different items (e.g., lower tax on groceries), while other nearby governments may levy the same tax on everything. Further, some governments charge tax on the pre-coupon/pre-discounted price, while others tax only the actual final price. Further still, some entities like public schools are exempt from paying sales taxes in many states/municipalities. In this case, the price sign would have to show both a pre-tax and tax-included price on it, which may be the best solution anyway. Regardless, these differences are probably easiest to account for at the point of sale.

TorKlingberg 13y ago

This is because other sellers are printing the price without tax, so the price with tax appears expensive. If all prices had to include tax, then people would get used to it, and the total consumption would be same in the end.