Oklahoma State Sen. John Sparks has introduced a bill that would create 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. for gun purchases, mirroring the so-called “Second Amendment 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” already in existence in South Carolina and Louisiana (see our Fiscal Fact on the proposal here). But 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 for firearms, like all sales tax holidays, is a bad idea.
“Anything that’s going to increase my business I’m all for, anything that is going to befit the consumer I’m all for because in the long run it’s going to befit me.” This was the comment of the gun shop owner in the video above. All too often, this is the extent of taxpayers’ evaluation of tax policy proposals: whatever benefits me is a good policy. And you can’t really blame them. Tax codes are routinely used by lawmakers as a means of rewarding well-connected taxpayers, tweaking people’s behavior, and buying votes with flashy, news-worthy tax breaks, and we have become quite accustomed to this practice. When we see everyone else making off like a bandit with their special tax break, it is only natural to ask, “How can I get in on the action?”
While it is true that a gun sales tax holiday will benefit a select few, as the gun shop owner in the video above so candidly admits, that doesn’t make it good tax policy. To start with, a sales tax holiday to encourage citizens to exercise their Second Amendment rights is hard to justify. Would anyone support a plan by the state treasurer to send out checks to individuals who elect to stand on street corners and exercise their right to free speech? What about a check for those who exercise their freedom of religion?
Yet this is what the gun sales tax holiday amounts to, a subsidy for gun buyers at the expense of the rest of the state’s taxpayers. A retail sales tax should apply equally to all end-user purchases, regardless of what the purchase is or when the purchase is made (or, for that matter, who makes the purchase and where or why they make the purchase). This broad tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , in turn, allows for a low sales tax rate on all purcahses, benefiting all consumers.
But as more and more special exemptions are added to the tax code, the likely result is that over time the tax rate will have to creep higher and higher in order to raise the same amount of revenue. And even if the sales tax holiday represents a real net tax cut (that is, the tax rate does not increase and no other taxes are increased to offset the lost revenue), there are much better ways to cut taxes. The benefits of sales tax holidays are greatly exaggerated and they come with real economic costs. See our recent Special Report on sales tax holidays for a discussion of the problems with sales tax holidays and suggestions for real tax reform.
The citizens of Oklahoma should not settle for this temporary, gimmicky tax cut. If Oklahoma lawmakers want to cut sales taxes, they should do so for all consumers, all year.Share