Last month we released our updated study on sales tax holidays, reporting that 16 states (mostly in the southeastern U.S.) will hold a sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. holiday in 2014, down from the peak of 19 states in 2010. As we note, political gimmicks like sales tax holidaySales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. s distract policymakers and taxpayers from genuine, permanent tax relief. If a state has to offer a “holiday” from its tax system, it’s a sign that there’s a problem with the system itself. If sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. relief looks good for a few days and politicians want to save consumers money, then why not offer the needed relief all year long?
The report also noted that as of press time, the Massachusetts House and Senate had passed conflicting bills on a 2014 sales tax holiday but nothing final had been enacted. Most states with sales tax holidays at least have them written into the law, but Massachusetts passes it one year at a time, at almost the last minute. This year was no exception; on August 1, legislators designated August 16-17 as the weekend where purchases up to $2,500 will be exempt from tax. This brings the total number of states with holidays this year to 17.
Jeff Jacoby of the Boston Globe quotes our research in panning the legislative move:
The retailers association has even argued that, thanks to the tax-free weekend, the state reaps significant tax gains.
Well, as Milton Friedman might say, if a tax cut increases government revenues, then taxes haven’t been cut enough.
Actually, some retailers use the customer rush triggered by a legislated tax holiday to increase prices. The greatest savings are often to be found before the tax-free weekend begins, with markdowns disappearing once the state’s heavily promoted tax break kicks in. Just because retailers may support a sales-tax holiday, the nonpartisan Tax Foundation remarks dryly, is no reason to assume it’s a good idea.Share