Sales Tax Holiday Proposal in Nebraska Makes a Bad Idea Even Worse

January 14, 2008

Sales tax holidays are not good tax policies for various reasons. They create distortions in consumption over time, huge compliance cost issues for businesses which can disproportionately affect small businesses, and they often create uncertainty regarding which items are exempt and when. In reality, they are just political gimicks where politicians try to buy people’s votes with a small tax cut so that they can say “we cut taxes.”

But one legislator in Nebraska is taking the degree of terribleness of sales tax holidays to a whole new level by trying to legally dictate the economic incidence of the short-term tax cut. (Governor Doyle, you now have company.) From the Associated Press:

A state lawmaker has proposed a new state holiday that would be celebrated by penny-pinching Nebraskans.

Senator Rich Pahls of Omaha wants a 3-day moratorium on the state sales tax during the first week of every August, a popular time for parents to buy school supplies. Similar legislative proposals have fallen flat before.

But Pahls put a twist on the bill he introduced Wednesday.

Stores would not have to participate in the holiday. And even if they did, they could choose which items to exempt from the sales tax.

Finally, while customers would not have to pay the tax on the items, businesses would still have to pay the tax to the state. That would address concern that a sales tax holiday could hurt state revenue.

The two final paragraphs of the AP story basically say it all in terms of how ridiculous this proposal is.

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