TRAN: Pricing in US must be more transparent about taxes, tipping
Column: Hung Up
Something unique to the U.S. is the lack of transparency in knowing the actual cost of what you are paying upfront, stemming from two main sources: taxes and tipping.
Regarding taxes, the displayed price of an item or service does not include the tax amount in it, unlike most other countries. This can easily be seen at dollar stores, where $1 cannot buy anything — you will need a few coins as well to cover the taxes.
With taxes excluded, customers may be psychologically more willing to spend when the prices seem lower. As expected, customers react more to changes in the display price compared to price changes that occur at the register. Lower prices apparently make people more willing to spend even if they may not be willing to if the fees were included in the advertised price.
Sales tax rates, though, vary by state, which is likely the main reason for similar displayed prices. Companies would have to display different prices based on that region's tax rate, and for online retailers, further complications could arise.
On the other hand, with increasing digitalization, this is not as much of an issue anymore. For online shopping, an address or local store has to be set in order to buy many things, which is often done automatically by the website detecting a device's location or having it stored. The displayed prices can then easily be updated based on that information.
In person, this can still be an issue, but these laws should favor customers rather than businesses, and so the onus should be on retailers.
A potential argument for the current system's benefit may be that consumers are able to be more knowledgeable and informed about the specifics behind their expenses. Customers can see how much they are actually spending on the goods and services, with the taxes being able to be viewed separately.
Perhaps this can increase price transparency and allow the customer to know how much of their money is going to the government. But in reality, this does not matter much. People buy things because they need or want them and probably assume the price they are paying is the best one they can get at the moment.
Knowing that the government is taking a certain fraction of the paid amount is irrelevant. In addition to this, the only thing you can do about it is ask the legislators to make a change, but the same could be done if the displayed prices were already included in the tax.
Regardless, New Jersey's sales tax has ranged from approximately 6 to 7 percent for the past 40 years, rather unresponsive to the economic status of customers.
The topic of tipping has become both more prevalent and contentious in recent years. Previously, a few services typically received tips, namely dine-in restaurants, delivery, valet, or some service shops, to list a few. Now, many self-service and pickup services request tips in the payment screen, where the customer can just press a button on the screen to quickly add a percentage to their total.
While it may be expected not to tip as much as one would in a sit-down restaurant, these kiosks often ask for the same treatment as if they were.
Of course, the reasoning for tipping, beyond being the gratuitous social norm, is that tipped workers can be paid less, even below minimum wage. Tips pass the onus of paying the workers more directly by the customers themselves rather than businesses paying their employees fairly.
This seems to be fully realized by customers as states with higher minimum wages receive lower tip amounts compared to states with lower minimum wages.
In any case, these are systemic issues that reduce price transparency and work more for advertising than supporting customers' financial needs. Tipping should be a bonus and mark of appreciation rather than an act that forces customers to be largely responsible for paying employees.
Approximately 66 percent of Americans feel negatively about tipping. In the same sense, display prices should more closely reflect the actual price that customers have to pay. While it may seem relatively inconsequential, it is simply easier for customers to calculate and track how much they are spending.
Tyler Tran is a sophomore in the School of Arts and Sciences majoring in Molecular Biology and Biochemistry and minoring in Economics. His column, "Hung Up," runs on alternative Mondays.
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