You Know What Maine Doesn’t Need? A Sales Tax Holiday.

January 28, 2009

While the Florida and Maryland legislatures have declined to repeat their former sales tax holidays for 2008 and 2009, one legislator wants to establish a new sales tax holiday in Maine. State Rep. Meredith Strang Burgess (R-Cumberland) notes that “Maine’s retail sector needs help,” and thinks suspending Maine’s 5% retail sales tax over Columbus Day Weekend is the way to improve matters.

As we’ve noted before, sales tax holidays add complexity and compliance costs to the tax code while distorting consumer choices. And unfortunately for Maine’s struggling retailers, they also don’t appear to foster additional retail sales: a New York State Department of Taxation and Finance study found that a sales tax holiday merely shifted sales across time, and didn’t generate new ones.

Maine is in a tough spot, tax-wise, because it’s a high tax state right next to New Hampshire, which has no general income tax, no sales tax, and a low tax burden overall. (Property taxes are higher in New Hampshire than in Maine, but not enough to offset the income and sales tax difference.) Most Mainers already have ready access to tax-free shopping any day of the year with a short drive into New Hampshire.

A tax holiday is a gimmick that would distract from fixing Maine’s very real high-tax problem. A better, pro-growth tax reform would actually be to broaden the sales tax base. Like most northeastern states, Maine has a very narrow-based sales tax which includes few services and excludes many consumer goods, like food and gasoline. While broadening its sales tax base, Maine could use the proceeds to cut its uncompetitive personal and corporate income taxes. These taxes top out at 8.5% and 8.93%, respectively, which are very high rates even for the northeast.

Alternatively, Maine can do nothing and continue to hang its hat on having a low-tax environment compared to New Brunswick. Because “not as bad as New Brunswick” is how we all want to be praised, right?

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