Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep.” This is the phenomenon by which people are pushed into higher income tax brackets or have...
- The Tax Policy Blog
- Connecticut Governor Puts the Kibosh on Sales Tax Holiday
Connecticut Governor Puts the Kibosh on Sales Tax Holiday
Tax Analysts reports (subscription required) that Connecticut Governor Dan Malloy (D) will not support a Connecticut Republican-encouraged sales tax holiday, which is being pushed forward as a way to give back a projected $101 million state surplus.
Republican Party Chair Jerry Labriola Jr. is spearingheading the measure, claiming "this money belongs to the people of Connecticut who continue to struggle under one of the heaviest tax burdens in the country."
That statement is certainly correct; Connecticut is a high tax state. In FY 2009, their state and local tax burden per capita was the highest in the nation at $7,256 and they ranked 47th in the 2011 Business State Tax Climate Index.
That said, sales tax holidays are a poor substitute for true tax reform. The literature shows that they do little to increase total spending (which proponents often argue produces Keynesian-style short-term stimulus), and they instead just shift consumption along the time horizon.
Sales tax holidays create unwarranted distortions in the economy, because they often favor one particular industry. They also add significant complexity to transactions, as retail outlets have difficulty changing the tax collection mechanism on computers and registers for just that time window. States are better off lowering their rate all year than settling for a politically popular distraction.
What's more, in Connecticut, it may not even be clear that there is a budget surplus. The $101 million that Mr. Labriola claims as a surplus is actually slated to pay down state debt associated with the fiscally irresponsible "2009 Economic Recovery Notes" program, which floated bonds to "balance" the state's budget.
If taxes are too high, lower them and cut spending accordingly. Don't fall for silly gimmicks that kick the can down the road.
Follow Scott Drenkard on Twitter @ScottDrenkard.
Subscribe to the Tax Foundation Newsletter
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.