‘Bah, humbug!’ on sales tax holidays (from the Tax Foundation — and, kinda, UT’s Bill Fox in an update)
(Note: If you’ve looked at TV news, listened to the radio or read any newspaper in Tennessee the past few days or so, you will have seen reports on the “tax holiday” — no sales tax on designated purchases — this weekend. The statewide USA Today Network – Tennessee version is HERE. On the other hand, there’s this.)
News release from The Tax Foundation
Washington, DC (July 25, 2017) – Sales tax holidays represent poor tax policy, costing states revenue while providing little benefit, according to a new Tax Foundation report.
More policymakers are recognizing this less-than-desirable tradeoff; Tennessee is one of only 16 states to use sales tax holidays for 2017, down from a peak of 19 states in 2010. Tennessee will offer a back-to-school sales tax holiday July 28-30.
- Sales tax holidays create additional tax compliance costs, but larger businesses tend to lobby for the holidays as a form of free advertising.
- Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating among products and across time, and distorting consumer decisions.
- While sales taxes are somewhat regressive, this does not make sales tax holidays an effective tool for providing relief to low-income individuals. In order to give a small amount of tax savings to those with lower incomes, holidays give a large amount of savings to higher-income groups as well.
- Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is an implicit recognition that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.
UPDATE: From a USA Today story, citing the posted news release:
Some critics contend that consumers might save even more without the holidays, as retailers would mount sales of their own timed to events such as back-to-school.
Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee, said he took advantage of Tennessee’s recent holiday to buy several pairs of running shoes. “That 9 ¼ percent I saved is minuscule in terms of ‘savings,’ ” he said. “The stores would be giving a much better discount if they had a sale. Back-to-school sales would have been like 25 percent off, not 9 percent, and people would have saved more.”
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