Sales Tax Holidays are ‘Political Gimmicks’ That Get in the Way of Real Tax Reform
Article from For Liberty by Norm Leahy.
Sixteen states have what they call “sales tax holidays” each year. Their goal: to spur purchases of specific goods and services during a specific period….free of state sales tax.
They are popular with politicians, who get to play the role of Santa Claus for a couple of extra days each year. But as public policy, they are terrible ideas that give those same politicians an excuse to keep their complex, expensive, and discriminatory tax systems in place.
As the Tax Foundation notes, sales tax holidays are “political gimmicks distract from genuine, permanent tax relief.”
And that’s just the beginning of the bad news about this bad policy:
Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence (including a 2017 study by Federal Reserve researchers) shows that they simply shift the timing of purchases.
Sales tax holidays are not an effective solution to the current economic crisis, as the drop in consumption is caused by a public health crisis, not less desire to spend.
Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a 4 to 7 percent discount leads many larger businesses to lobby for the holidays.
Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating among products and across time, and distorting consumer decisions.
“If a state must offer a ‘holiday’ from its tax system,” the Tax Foundation writes, “it is an implicit recognition that the tax system is uncompetitive.”
“If policymakers want to save money for consumers, they should cut the sales tax rate year-round.”
You can read the entire Tax Foundation report here.
Image Credit: By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons