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Sales Tax Holiday Proposal in Nebraska Makes a Bad Idea Even Worse

1 min readBy: Gerald Prante

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 not good 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. policies for various reasons. They create distortions in consumption over time, huge compliance cost issues for businesses which can disproportionately affect small businesses, and they often create uncertainty regarding which items are exempt and when. In reality, they are just political gimicks where politicians try to buy people’s votes with a small tax cut so that they can say “we cut taxes.”

But one legislator in Nebraska is taking the degree of terribleness of sales tax holidays to a whole new level by trying to legally dictate the economic incidence of the short-term tax cut. (Governor Doyle, you now have company.) From the Associated Press:

A state lawmaker has proposed a new state holiday that would be celebrated by penny-pinching Nebraskans.

Senator Rich Pahls of Omaha wants a 3-day moratorium on the state sales tax during the first week of every August, a popular time for parents to buy school supplies. Similar legislative proposals have fallen flat before.

But Pahls put a twist on the bill he introduced Wednesday.

Stores would not have to participate in the holiday. And even if they did, they could choose which items to exempt from the sales tax.

Finally, while customers would not have to pay the tax on the items, businesses would still have to pay the tax to the state. That would address concern that 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. could hurt state revenue.

The two final paragraphs of the AP story basically say it all in terms of how ridiculous this proposal is.