August 18, 2011
Gold and her mother picked up several back-to-school outfits.
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,
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
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
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
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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