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State Lawmakers Promote Sound Tax Policy by Doing Nothing

2 min readBy: Josh Barro

We’d like to thank legislatures in Florida and Virginia for promoting sound 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. policy by doing nothing at all.

  • In June, Virginia Governor Tim Kaine (D) called a special legislative session that was intended to raise $1.1 billion in new taxes for transportation. Richmond policymakers had lots of different ideas about how to do that, most of them quite bad. Kaine and Senate Democrats each proposed a varying menu of localized and statewide increases in the general 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. , plus higher taxes and fees on hotel rooms, car sales, car registration, and real estate transfers. Senate Democrats also wanted to raise the gasoline tax by six cents a gallon. House Republicans flirted with some locally-targeted tax increases for the areas to receive transportation benefits, but ultimately passed a plan with no new taxes.

The special session produced much partisan bickering and recrimination, but no new taxes, as the Republican House of Delegates and Democratic Senate could not come to terms on a plan. After the session crumbled on Thursday, Kaine offered what appears to have been praise for legislators:

I don’t think I’ve ever seen a group work so hard to do nothing. It was doing nothing taken to an art… It was like a “Seinfeld” episode, the show about nothing.

We agree: Seinfeld was a great television show, and ‘nothing’ was a great outcome for this special session.

  • Florida legislators were quieter but no less proactive in their inactivity. Florida’s (in)action took place back in May, when budget-crunched legislators declined to reauthorize the 10-day “back to school” 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. that has traditionally come each summer. With the usual time for the holiday approaching, reporters are starting to take notice, and some retailers are displeased.

Sales tax holidays look like a boon to the consumer, but as we have written previously, they make the sales tax less neutral across products and time and increase retailers’ compliance costs. When Florida’s coffers are flush once again, legislators should look to make broad-based reductions in the sales tax rate, rather than narrowing the tax’s base with holidays.

See more on state and local taxes in Virginia and Florida.