NASHVILLE — Tennessee residents just completed a three-day back-to-school shopping spree, in which a variety of retail items, from clothes to computers, could be purchased tax free.
But are such sales tax holidays political ploys that stand in the way of meaningful changes in the tax code?
That’s the argument of the Washington, D.C.-based Tax Foundation.
“So-called sales tax ‘holidays,’ whether targeting clothing, school supplies or disaster readiness, are costly and misguided substitutes for substantive reform of a state’s sales tax regime, according to the report from the independent research firm.
Tennessee is one of 17 states this year that sanctioned a period of time when selected goods are exempted from state or local sales taxes.
According to the Tennessee Department of Revenue’s website, state officials implemented a $100 cap on clothing products and school supplies and a $1,500 cap on computers for the tax holiday. Such events, however, only serve as a diversion from a more constructive way of thinking, according to the report.
“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief.” said Joseph Henchman, Tax Foundation vice president for Legal and State Projects.
“If a state has to offer a ‘holiday’ from its tax system, it’s a sign that there’s a problem with the system itself. If politicians want to save money for consumers, then they should cut the sales tax rate year-round.”
The Tax Foundation’s report said such programs have little or no effect on overall economic activity. In addition, sales tax holidays force a store’s employees to reconfigure software for only two or three days — while only providing consumers a temporary discount.
“If tax relief for consumers looks good for a few days, why not give it to them all year long?” Henchman asked.
Among the report’s main points:
• Sales tax holidays do not promote economic growth or significantly increase consumer purchases. The evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.
• Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating between products and across time, and distort consumer decisions.
• While sales taxes are somewhat regressive, this is often exaggerated to sell the idea that sales tax holidays are an effective way of providing relief to the poor. To give a small amount of tax savings to low-income individuals, holidays give a large amount to others. MP
Contact Christopher Butler at email@example.com.