According to this morning’s state tax headlines (subscription req’d.), Massachusetts Senate Majority Whip John Hart (D) has proposed 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. for the fast approaching weekend of August 13th and 14th. It seems that state budget projections are looking rosier than expected, and Sen. Hart is looking to lighten the 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. burden of his fellow Bay State residents for two days.
While I’m sure his heart is in the right place, the Senator seems to have somehow missed the message of our most recent Tax Foundation Special Report, “Sales Tax Holidays: Politically Expedient but Poor Tax Policy.” The authors explain that short-term tax holidays create compliance burdens for businesses and administrative costs for revenue officials without actually stimulating new economic activity. Additional purchases made during holiday periods tend to be ones that consumers would have made in any case, just time-shifted to the tax-free dates.
Mark Robyn, Joseph Henchman and Micah Cohen sum up the trouble with the tax holiday model:
Despite their political popularity, 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 are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.
More information on sales and use taxes available here.
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