On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
- The Tax Policy Blog
- Georgia Passes on Back-To-School Sales Tax Holiday
Georgia Passes on Back-To-School Sales Tax Holiday
Georgia's legislature has opted not to renew its back-to-school sales tax holiday this year, citing concerns over the state's $2 billion budget deficit. This is a move in the direction of sound tax policy and more lawmakers should consider eliminating sales tax holidays, regardless of the condition of their state's budget.
Sales tax holidays are a gimmick designed to win political points for lawmakers. Don't be fooled by claims that brief tax holidays boost the state economy. The products typically targeted in sales tax holidays are things people would be purchasing anyway, like school supplies. Indeed, an argument often given is that families need to purchase these items for their children, so we should give them a tax break (more on that in a moment). But if families are going to purchase school supplies regardless of the tax break, the tax holiday provides no overall benefit to the economy through increased sales. Any increase in business during the holiday is largely due to a shift in the timing of purchases (not to mention the natural rush that occurs before the start of the school year), not an overall increase in economic activity.
Still, many might argue that even if there is no benefit to the economy on whole, it is still a tax cut. True, but there are much better ways to implement tax cuts. Why should a family with school children get a tax cut but not a retired couple? If lawmakers want to cut taxes, they should do so in a way that benefits everyone, no matter what they purchase or when they purchase it. Unfortunately, sales tax holidays and other tax gimmicks only serve to distract lawmakers and the public from genuine, permanent tax relief.
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