This op-ed appeared in the Shreveport Times on August 9, 2009.
Fifteen states will have 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 weekends this year, most of them tied to back-to-school or hurricane-preparedness savings. But not all 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. s are created equal. A new trend has emerged in 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 recently as Louisiana Gov. Bobby Jindal enacted a “Second Amendment Weekend” that exempts all state and local sales taxes for rifles, handguns and a litany of hunting-related supplies for the first weekend of September. While South Carolina was the first to implement such a plan, other states, including Texas and Kentucky, are considering introducing similar gun sales tax holidays.
The tax breaks are pitched as a way to spur economic activity. Supporters argue that the holiday will increase the number of guns purchased. Since the 1980s, politicians have been claiming that a sales tax holiday, through increased economic activity, will “pay for itself.” While it is true that general sales go up during holidays, overall retail sales for that month might not.
The New York State Department of Taxation and Finance conducted a study on the value of its own sales tax holidays. The study found that while sales increased during the holiday period, sales for the year were almost unchanged. Shoppers didn’t buy any more goods; they simply shifted the timing of their retail purchases. This trend, which includes a dip in sales the weeks before and after the tax holiday, has been seen in other states with similar tax holidays and is expected in Louisiana.
It has been argued that this holiday increases recognition of the importance of the Second Amendment. However, it is absurd to think that tax policy should encourage individuals to exercise a specific right. Should the government give tax incentives to use Miranda rights? If so, then more people should start pleading the fifth.
Tax policy should be neutral to economic decision-making. Jindal is supporting a bill aimed at micromanaging the economy. The government of Louisiana, by deciding which items and industries are exempt, is attempting to determine the winners and losers in the market. The government, by targeting a singular sector for the holiday, is essentially subsidizing an industry.
Sales tax holidays and other tax gimmicks often end up being nothing more than a superficial political photo-op. It is unfortunate that Jindal chose to sign a bill that narrows the sales 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. , introduces unnecessary complexities for small businesses, and creates instability in the tax code when there is a wealth of better options for lowering taxes elsewhere.
At first glance, sales tax holidays sound like a taxpayer’s dream come true. And for politicians who are always clambering toward a few more points in the polls, the gimmicks might give them a slight edge. However, these supporters’ claims are myopic. Good, solid public policy should take into account long-term results instead of short-sighted political pandering. Some states and localities, including Florida, Maryland and the District of Columbia, have cancelled their holidays this year due to revenue shortfalls. Other states—including Louisiana—should take notice instead of adding to the list of popular sales tax holiday items.
Sales tax holidays introduce costly economic distortions into the economy by favoring some industries and products over others; broadly based and permanent tax cuts, on the other hand, can reduce distortions. It is important to provide tax relief without hindering the efficiency of the economy or distorting the decision making of individuals or firms. Taxes should be neutral to consumer spending patterns and decision making. Buying a gun is a personal decision best made in an efficient and nondistortionary market.
Micah Cohen is a summer fellow at the Washington, D.C.-based Tax Foundation, a nonpartisan research and educational organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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