Mississippi Gun Sales Tax Holiday: Good Politics, Terrible Policy
February 17, 2010
Lawmakers in Mississippi are considering a bill that would create an annual sales tax holiday for certain firearms and ammunition over the weekend preceding Labor Day. Sales tax holidays are the temporary suspension of sales taxes, usually applying to a limited list of products. Though not at all widespread, the idea of a “Second Amendment sales tax holiday” is not unique to Mississippi. South Carolina and Louisiana both have annual gun sales tax holidays, and Oklahoma legislators are currently considering a gun holiday.
Sales tax holidays, whether for firearms or school supplies, are bad tax policy. Politicians claim that they benefit the economy by increasing sales, but studies have shown that the vast majority of the increase in sales during a sales tax holiday is due to a shift in the timing of purchases, not a long-term increase in total purchases: consumers plan purchases they would have made anyway to coincide with the holiday, reducing purchases before and after the holiday.
The revenue loss from the tax cut would likely be relatively small, which is one reason politicians love it so much: they can enact a flashy headline-grabbing sales tax holiday and claim to be tax cutters while not really giving up much in revenue. They are a political gimmick. But lawmakers should not be allowed to play politics with the tax code.
Let’s be clear here: the issue is not gun rights. If applying the sales tax to guns is anti-Second Amendment, then taxing mp3 players is anti-music and taxing paper clips is anti-paper clip. As we noted in our recent report on sales tax holidays,
Gun sales tax holidays are perverse in that they suggest that our rights need governmental encouragement through the tax code to be meaningful. Giving tax credits to individuals who plead the Fifth Amendment or assemble to present grievances would be absurd. The fewer economic decisions that are made for tax reasons, the better.
The real issue is the proper sales tax base. Sales taxes should be neutral with regard to different products or the timing of purchases, applying to all end-user purchases. But sales tax holidays by definition favor certain products and timeframes over others. In doing so, sales tax holidays introduce damaging distortions into the economy and increase the government’s hand in the market. The tax code should not be used to micromanage the economy or bestow gifts on politically favored groups. If Mississippi lawmakers want to cut taxes, they should do so in a way that benefits all consumers via a broad-based sales tax cut.
For more on why sales tax holidays should be avoided, see Tax Foundation Special Report No. 171: Sales Tax Holidays: Politically Expedient but Poor Tax Policy.