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Fireworks Stores Need Independence Too

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Fireworks Stores Need Independence Too

July 2, 2018

Small fireworks stores are setting up shop across the country in preparation for the Independence Day.  With Americans expected to spend $900 million on fireworks this year, local entrepreneurs are hoping to bring in large profits while celebrating America.

In the last decade, the sale of fireworks has been legalized from New Hampshire to Utah, leaving Massachusetts as the only state with a complete ban on all fireworks.  Responding to increased demand, franchise fireworks shops such as TNT Fireworks and USA Fireworks appear across the country every summer, filling abandoned storefronts.

The abundance of fireworks retailers should lead to more competition and consequently lower prices.  However, sellers often face regulatory obstacles that limit their activities.  High permit fees prevent small vendors from opening or expanding businesses, and many existing regulations favor established large retailers.  For instance, in Georgia anyone wanting to sell fireworks must apply for a $5,000 license, no matter how many stores operated by the seller.  A single small shop must pay the same as Walmart or Costco, which sell in multiple locations.

While states have generally been more lenient towards fireworks in the last few years, some lawmakers are trying put in place more regulations.  In Michigan, State Representative Jim Lilly (R) is pushing for the passage of House Bill 5939 which would severely clamp down on fireworks vendors.  The bill would limit “acceptable” products and only allow for fireworks sales on a few days around holidays.  These restrictions would adversely affect year-round sellers, leaving many customers searching elsewhere for their supply.

Safety is of the utmost importance when it comes to fireworks.  An estimated 12,900 people were injured in U.S. fireworks-related accidents last year.  Supporting legitimate restrictions that curb these incidents is important to maintaining public safety.  Safety tips and warnings about launching fireworks while under the influence should be posted in all stores to promote public well-being.

However, excessive restrictions and high taxes have negative safety and economic consequences.  Black markets will emerge when sellers are turned off by high compliance costs and consumers want to avoid paying large sums in taxes.  This is even more dangerous to the public, as transactions would be completely unregulated.

Additionally, states are only hurting themselves by instituting fireworks safety taxes, as buyers will spend their money elsewhere if costs are too high.  When West Virginia implemented a 12 percent tax on fireworks in 2017, the state expected to bring in $2.1 million in tax revenue.  In reality, the state collected less than $800,000.  Politicians admitted that the discrepancy could be attributed to customers buying from neighboring low-tax states such as Kentucky and Ohio.

Despite the evidence that excessive restrictions and taxes reduce revenues, some of the newest state entrants into fireworks sales, such as Pennsylvania, are instituting higher taxes and fees than ever before.  This Fourth of July will be the first time in 80 years that residents of the Keystone State can legally shoot off fireworks, but with net taxes on sales reaching 20 percent in some areas, residents will likely travel to neighboring states to make their purchases.

Residents of states with strict laws and high taxes do not have to travel far to purchase cheap fireworks due to the prevalence of border county sellers.  In South Carolina, over half of fireworks permits are given to vendors within 50 miles of the North Carolina border.

The effect of interstate sales can be observed in data regarding fireworks-related injuries.  Illinois has some of the strictest fireworks laws in the country, yet last year around Independence Day hundreds were injured by fireworks.  While this number would optimally be zero, injuries happen because people have individual freedom and should—but often do not—behave responsibly.

Restrictive fireworks laws punish sellers when the real problem is user error and mishandling.  Safety campaigns should continue, but not fireworks bans, extreme permit fees, or tax hikes.  As long as travel across state borders exists, customers will continue to vote with their feet by purchasing fireworks wherever they are cheapest.

Stephen Vukovits is a contributor to Economics 21.  Follow him on Twitter @svukovits.

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