Scott Drenkard and Liz Malm in Today's Washington Post

August 10, 2014

Our work makes the Washington Post pretty frequently, but I wanted to alert you that today we're in it twice! First up, my colleague Liz Malm on sales tax holidays:

A recent study released by the nonpartisan research group Tax Foundation argues that these exemptions do little to increase purchases. Liz Malm, an economist who co-wrote the report, said her research found that tax holidays don’t appear to prompt consumers to shell out more money. Rather, they simply prompt shoppers to change the timing of a purchase they probably would have made anyway.

“These aren’t going to induce new behavior; they’re just going to provide a consumer a benefit for a thing they’ve already done,” Malm said.

Sixteen states will hold a tax-free holiday this year, a slight decline from the 18 states that did so last year.

The Tax Foundation’s study is one of few research papers that aims to examine the impact of tax holidays: Little data exists on how much revenue states miss out on as a result of these policies."

In the second piece, my colleague Scott Drenkard criticizes Post editorial that called for a higher federal cigarette tax in the belief that it would reduce interstate tobacco smuggling. Scott writes that this argument is unpersuasive:

Even if Congress hiked the federal rate from $1.01 to $2, Virginia and New York City would still have the same differential, and smuggling would persist. What’s more, a federal tax hike would make selling fake cigarettes from abroad more profitable. In 2009, one source estimated that Chinese bootleggers produced 400 billion cigarettes to meet international demand.

Maybe it’s time to come to grips with the fact that we’ve taxed tobacco into de facto prohibition, and we should bring the rates down.

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