Some energy efficient appliances are 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. -free in Missouri during this week’s energy efficient appliance sales tax holiday. In addition, consumers may be eligible for rebate checks on energy efficient appliances through the Energize Missouri Appliance Rebate Program funded by the 2009 federal stimulus package.
As we have written before, sales tax holidays are unjustifiable. They do not provide any substantial boost to the economy, they introduce unnecessary complexity into the tax code, and they arbitrarily discriminate between consumers based on what types of products they purchase. 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. holidays are a political gimmick.
But Missouri’s unique combination of a sales tax holidayA sales tax holiday is a period 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. and a rebate program helps to highlight one point that we continually make here at the Tax Foundation. The rebate, where the government writes a check for a given amount to a consumer after they have made an eligible purchase, is clearly a spending program. The government is subsidizing consumer purchases, in this case energy efficient appliances, using money in their accounts.
In the case of a sales tax holiday, consumers are allowed to keep sales taxes that they normally would be required to pay. So, what is the difference between the government cutting someone a check after a purchase has been made and the government waiving that person’s sales tax liability at the point of purchase?
Economically speaking, there is none. Sales tax holidays are an example of what are known as tax expenditures, and are best characterized as government spending funneled through the tax code. Both of Missouri’s appliance programs have the same effect: revenue that would have been available for spending on essential government services is instead awarded to the consumer of the favored product. And in both cases there are two possible outcomes: services must be cut to reflect the lost revenue, or (more likely) that revenue will have to be made up elsewhere in the form of higher taxes.
All too often one is viewed as government spending and the other as a tax cut.
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