#298(8/22)- Say What! - "Sales Tax Holiday Only A Gimmick ..."

[FYI - My GENday is Sept. 19th. When is YOURS?]

- from Newsmax.com; August 12

Sales tax holidays that exempt certain items from state and sometimes local sales taxes will be held in 17 states this year, with supporters continuing to tout their economic benefits. But a new report from the Tax Foundation argues that the holidays are “politically expedient but poor tax policy.”

Tax holidays often exempt back-to-school supplies, clothing, computers, and hurricane preparedness items, and politicians and other backers claim they boost sales, create jobs, and benefit lower-income Americans. But the Tax Foundation report states: “Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a ‘holiday’ from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.” The foundation makes several points casting doubt on the economic benefits of sales tax holidays:

* Rather than stimulating new sales, tax holidays simply shift the timing of sales. A 1997 study in New York found that while sales of exempted items rose during the holiday, overall retail sales for the year did not increase, because shoppers waited until the holiday to purchase exempted goods, slowing down sales in the weeks before and following the holiday. Retailers often raise prices during the holiday, reducing consumers’ savings. The more consumers the holidays turn out, the more demand goes up, and the more prices rise, because retailers are not required to keep prices at non-holiday levels.

* Most tax holidays involve politicians picking products and industries to favor with exemptions, “arbitrarily discriminating between products and across time, and distorting consumer decisions,” the report observes. [This is what is called "crony capitalism" where government chooses the winners and losers in the economy.]

* Tax holidays are not an effective way of providing relief to the poor. “To give a small amount of tax savings to low-income individuals, holidays give a large amount to others,” the report also states. Any increase in employment during the holidays will be modest and temporary, and costly for businesses that must hire and train temporary employees. The report concludes: “Sales tax experts and economists widely agree that there is little evidence of increased economic activity as a result of sales tax holidays. Experience shows that the claims of economic stimulus, increased revenue, and consumer savings are greatly exaggerated. The holidays instead represent a costly-to-administer revenue loss for the government.”

Noting that the District of Columbia canceled its sales tax holidays beginning in 2009 after a study found they did not spur enough growth to offset costs, the Foundation adds: “Other states would be wise to follow D.C.’s lead and re-evaluate the costs and benefits of sales tax holidays.”

[bold and italics emphasis mine]