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You Know What Maine Doesn’t Need? A Sales Tax Holiday.

2 min readBy: Josh Barro

While the Florida and Maryland legislatures have declined to repeat their former 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 for 2008 and 2009, one legislator wants to establish a new sales tax holiday in Maine. State Rep. Meredith Strang Burgess (R-Cumberland) notes that “Maine’s retail sector needs help,” and thinks suspending Maine’s 5% retail 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. over Columbus Day Weekend is the way to improve matters.

As we’ve noted before, sales tax holidays add complexity and compliance costs to the tax code while distorting consumer choices. And unfortunately for Maine’s struggling retailers, they also don’t appear to foster additional retail sales: a New York State Department of Taxation and Finance study found 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. merely shifted sales across time, and didn’t generate new ones.

Maine is in a tough spot, tax-wise, because it’s a high tax state right next to New Hampshire, which has no general income tax, no sales tax, and a low tax burden overall. (Property taxes are higher in New Hampshire than in Maine, but not enough to offset the income and sales tax difference.) Most Mainers already have ready access to tax-free shopping any day of the year with a short drive into New Hampshire.

A tax holiday is a gimmick that would distract from fixing Maine’s very real high-tax problem. A better, pro-growth tax reform would actually be to broaden 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. . Like most northeastern states, Maine has a very narrow-based sales tax which includes few services and excludes many consumer goods, like food and gasoline. While broadening its sales tax base, Maine could use the proceeds to cut its uncompetitive personal and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es. These taxes top out at 8.5% and 8.93%, respectively, which are very high rates even for the northeast.

Alternatively, Maine can do nothing and continue to hang its hat on having a low-tax environment compared to New Brunswick. Because “not as bad as New Brunswick” is how we all want to be praised, right?