Conservative Group Calls for End of Tax Holidays
So-called sales tax holidays may be popular with politicians, retailers and the media that write stories about the events, but they do not create any meaningful economic benefit and simply shift sales from one period to a next. That is the conclusion of a study by the Tax Foundation.
The group, which was formed in 1937 in response to the growth of government under Franklin Roosevelt, found that sales tax holidays complicate “tax code compliance” and create added costs for business as they make labor and inventory adjustments.
Ultimately, the group found: “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 a sign 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.”
With the current spending mood of consumers, few retailers would argue that they expect to get a big lift as a result of tax holidays this year (16 states have holidays, down from 19 last year). However, there are many that disagree with the Tax Foundation’s findings.
Rick McAllister, CEO of the Florida Retail Federation, told The Associated Press that the group’s findings were “Ludicrous … Why do we want to go to all this trouble if all we did was move sales from two weeks prior or two weeks after this? We wouldn’t do it. It wouldn’t make any sense.”
Mr. McAllister said sales tax holidays work because “there’s just something psychological about not wanting to pay tax. Let’s face it, Amazon.com has got rich doing it.”
Discussion Questions
Discussion Questions: What is your view on sales tax holidays? Are they ultimately good for businesses and consumers?
Tax holidays, like black Friday, are great for those for whom shopping is a sport. I have to believe that tax holidays in many cases move consumers off the mark (it isn’t just a time shift) on big ticket items and drive incremental sales in the process. This year in particular, I can see how rising fuel costs and triple digit heat in many areas of the country would drive the latter dynamic as shoppers seek to minimize the number of trips that they make to the store.
I saw the impact retailers having their own “tax holiday sales” can have. Based on their numbers, sales increased during the holiday and maintained normal levels afterwards. Based on that experience I can say when used in that manner it was effective.
When done on a state-wide basis (a true tax holiday), I agree with Carol that it is likely to get some people to make a purchase that they might not otherwise make–especially if the retailer has the item on sale already. Who doesn’t like it when a discount goes from 20% off to 20% off, plus 5% because there is no sales tax?
My view is that the Tax Foundation’s conclusions are spot on.
If anything in this discussion is “ludicrous” it is Mr. McAllister’s comment. Tax holidays usually revolve around back-to-school or holidays. In most every case, they come at a time when consumers are going to buy anyway. To suggest that sales are increased in any appreciable way is illogical.
I am with the Tax Foundation. Tax holidays are a political gimmick that satisfies an ignorant and naive electorate.
The real question is are we getting incremental lift from the tax holidays? If the answer is yes then tax holidays are good within reason. If the answer is no, or barely, or if we are truly just moving the traffic around from one week to the next, then the tax holiday is indeed causing more harm than good. It all depends on the truthful answer and I do suspect it varies with channels of trade, various products and types, and other variables.
I think they are good for business, and more importantly give local retailers a chance to be competitive.
Here in Massachusetts, the local retailers that hire people, pay property and income taxes, and support other local businesses get 2 tax free days a year.
Amazon.com and other online retailers who don’t do any of the above get 365 tax free days a year.
I think we retailers can handle the “tax code compliance” issues just fine.
I don’t agree with the Tax Foundation that the issue is the amount of the state sales tax, but rather leveling the playing field for everyone who sells something to those who reside in the state.
The Tax Foundation strikes me as being a bit of a Grinch. Yes, cutting the sales tax year-round would be welcomed with open arms by shoppers nationwide. But on this side of death-and-taxes reality, it ain’t gonna happen.
It’s never been a secret that sales tax holidays are more psychological benefit than transactional benefit. But if the holidays make shoppers feel better about spending their hard-earned dollars during key periods throughout the year–and while still adjusting to post-recession reality–why try to take them away? Let’s keep the sales tax holidays, tell the Tax Foundation they’re taxing our patience, and ring up a win for shoppers.
I agree with Tim; and to extend his metaphor to other parables, while I think the Tax Foundation has the brains in this discussion, the Retail Federation has the heart…which is to say this really has little or nothing to do with Tax Holidays per se, but an effort to abolish taxes, period (and implicitly the services they fund…let’s see how consumers feel about that “genuine” relief).
I think every day should be a sales tax holiday!
Without entering the argument of whether the conservative agenda of reducing taxes and the scope of government is a good thing or not, I find the Tax Foundation’s argument on tax holidays to be perverse.
To suggest that sales tax holidays “distract policymakers and taxpayers from genuine, permanent tax relief” is absurd.
The conservative argument has always been that any tax decrease is to be looked on favorably, regardless of legislative motive (and to look on any tax increase unfavorably). They have always maintained that any tax cut is a good thing.
So, to me, their argument is intellectually inconsistent with professed conservative principles. Whether you agree with those principles or not, their argument is not worthy of being taken seriously.
Now, whether tax holidays are worthwhile, whether they actually increase sales, or merely “pull” sales forward is a question that the Tax Foundation should leave for retailers (and legislatures) to answer. My own sense is that tax holidays do increase August sales, but that they also pull some sales forward into the beginning of the month from later in the month.