D. Dowd Muska


Attention, Shoppers: We Can Do Better Than Tax ‘Holidays’

August 18, 2011

In Huntsville, Alabama, Mikaela Gold and her mother picked up several back-to-school outfits.

Marissa Hurtado, with her mother Shirley, did the same in Santa Fe, New Mexico.

Kathy Cline, of Pompano Beach, Florida, bought school supplies for her nephew.

Deb Dellacona, a resident of Wenham, Massachusetts, spent several thousand dollars on a recliner and ottoman.

The gals all took advantage of sales-tax-free shopping in their respective states during the first few weeks of August. Similar “holidays” are about to get underway in Texas and Connecticut, with more to come elsewhere before 2011 ends.

Any tool that drains some of the flow of taxpayer cash that vanishes into Big Government’s immeasurable maw is a good thing -- isn’t it?

No, says a report issued by the Washington, D.C.-based Tax Foundation. In “State Tax Holidays: Politically Expedient but Poor Tax Policy,” Mark Robyn, Micah Cohen, and Joseph Henchman argue that consumption-based levies “should raise revenue, not micromanage a complex economy by picking winners and losers in the market.”

It’s been nearly a decade and a half since New York, responding to border-jumpers making clothing and footwear purchases in nearby states, enacted a sales-tax holiday. Over the next few years, Florida, Texas, South Carolina, Pennsylvania, Iowa, and Connecticut followed. The bandwagon grew crowded in the new century, and justifications multiplied. “In 2011,” the Tax Foundation’s economists write, “15 states will hold clothing sales tax holidays, 10 states will have school supplies sales tax holidays, six states will have computer sales tax holidays, and four states will have Energy Star products sales tax holidays.” Gun-lovin’ folks in Louisiana and South Carolina will again enjoy tax-free sales of firearms this year.

But as a conservative think tank in the Palmetto State noted, “If we allow lawmakers to tinker with the tax code for everything they support at the expense of those they do not, we’ll end up with what we have now, which is an absurdly complicated tax code.” The Tax Foundation agrees: “Politicians single out specific populations or industries to bestow targeted tax breaks on them. Such discrimination between products distorts consumer spending and reduces market efficiency by favoring certain products over others. Consumers should make consumption decisions for economic reasons, not tax reasons.”

Sales-tax holidays’ ability to goose economic growth is weak. New York’s trendsetting event in 1997 was found to be ineffective by the Empire State’s own revenucrats. A study by the New York State Department of Taxation and Finance concluded that “much of the $174 million in ‘additional’ clothing sales during the exemption week were not new sales generated by the exemption but were sales that would normally have occurred during prior or later weeks in the sales tax quarter.” Plenty of evidence, both anecdotal and academic, backs up the Tax Foundation’s allegation that states “see little net economic activity as a result of sales tax holidays; the holidays instead represent a costly-to-administer revenue loss for the government.” Furthermore, the schemes are not without costs for vendors -- reprogramming registers, hiring additional staff, and adhering to mystifying regulations pertaining to coupons, layaway, rain checks, and shipping costs “can place a large burden on businesses.”

Not a stimulus, and not a boost for the poor. According to Robyn, Cohen, and Henchman, “If the purpose of sales tax holidays is to make school supplies and clothes cheaper for low-income individuals, then a 4 to 7 percent price reduction for all consumers, but only for a brief period, is an odd and ineffective way of achieving it.”

And finally, what about the foregone lucre? Sales-tax holidays unquestionably “cost” pols and bureaucrats. In response, do public employees take a small compensation cut? Are welfare programs curtailed? Are corporatist subsidies trimmed? Of course not, explain the Tax Foundation’s analysts: “Because states must balance their budgets, and because states rarely if ever cut spending to offset the revenue loss from sales tax holidays, the net result is that taxes must go up somewhere else now or in the future. There is no free lunch, and tax cuts do not exist in a vacuum.”

Whether in Alabama, New Mexico, Florida, or Massachusetts, no American should be condemned for legally escaping the bite of any tax. But an opportunity for consumers to save on clothes, furniture, “green” goods, or guns isn’t necessarily sound policy.

Whatever their superficial appeal, sales-tax holidays are politician-induced trickery, and a trap for the limited-government movement. Real rollbacks of the public sector at all levels must remain the goal. Only then will broad, deep, and permanent tax relief be possible.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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