Massachusetts may soon be the 19th state to enact a sales tax holiday for 2010. Massachusetts lawmakers have sent 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. bill to Governor Patrick’s desk and the Governor has indicated that he will sign the bill. But the Governor would be wise to steer clear of this bill.
The popular but ill-advised policy of offering a temporary break from sales taxes has become more prevalent over the last decade, with 18 states having scheduled at least one holiday in 2010. In a way this makes sense. Politicians love 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 because it allows them to pass a relatively small 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. cut and forever brand themselves with the invaluable “Tax Cutter” stamp. That is not to say that a small tax cut is not worthwhile. But if Massachusetts has the extra room in their budget to afford even a small tax cut it would be much better to give that tax cut to all consumers regardless of when they shop.
The argument that sales tax holidays are a great boon for the economy is wrong. Sales tax holidays mostly shift the timing of purchases that would have occurred anyway. Business will increase during the tax free period, but it will be down in the weeks before and after.
If you have to offer a holiday from your state’s tax system, maybe that is a sign that there are larger problems. Gimmicks like sales tax holidays distract from real, beneficial tax reform. Bay Staters should not be mollified by such policies, but instead should demand that their elected officials make genuine tax reform a priority.
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