Illinois Will Be Better Off Without a Sales Tax Holiday

May 28, 2009

Illinois Governor Pat Quinn is bemoaning the absence of the sales tax holiday he called for in his budget. From the Quad City Times:

In his proposed budget, Gov. Pat Quinn called for dropping state sales tax collections on clothes and other school-related supplies for a 10-day span in August.

But, the idea has gone nowhere in the General Assembly, which is busy this week trying to wrap up its action for the spring by a May 31 deadline.

On Tuesday, a spokeswoman for the governor acknowledged he’s abandoned the idea.

“While the governor still believes that a sales tax holiday would help working families, at this point he is focusing on other priorities such as balancing the budget and passing robust ethics reform,” spokeswoman Marcelyn Love noted in an email.

Lawmakers also said the state can’t afford to give up the estimated $50 million that would be lost if parents were given the sales tax break.

The governor may be upset at not being able to give parents a break, but he should take heart in the knowledge that sales tax holidays don’t benefit shoppers the way everyone thinks they do. The holidays increase tax compliance costs and complexity for retailers, especially small businesses, which need to reprogram computers and change procedures for a brief period of time—not an efficient way to do business.

Sales tax holidays also decrease stability in the tax code, making things more confusing for shoppers and retailers alike, and distorting consumer spending by encouraging shoppers to purchase different items or to buy them at different times. In the long run, this can be detrimental to businesses, shoppers, and the economy as a whole. Any policymaker who wants to help back-to-school shoppers would do better to advocate a lower sales tax rate throughout the year, applied to a broad base of goods and services.

More on sales tax holidays, sales taxes, and taxes in Illinois.

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