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Why sales-tax holidays are a sham
Go hit the stores during your annual back-to-school tax holiday, says Steve Chapman in Reason. Just don't expect to save any money
 
Sales-tax holidays may not actually increase economic activity.
Sales-tax holidays may not actually increase economic activity.
Corbis

It's August, so it's time for the annual ritual known as the sales tax holiday, says Steve Chapman in Reason. This year, 18 states from Texas to Vermont will deploy this "gimmick" under the logic that it both helps retailers and saves parents money "on school supplies and clothing" — while simultaneously allowing politicians to portray themselves as "stalwart champions of the average person." In this economy, they can even peddle the relief as "an ingenious form of fiscal stimulus." The trouble is, the whole thing is a boondoggle that does nothing it's supposed to do. Here, an excerpt:

In reality, the exemption doesn't increase overall economic activity. It merely induces people to delay or accelerate purchases to fit into the time window. When New York had a sales tax holiday for clothing in 1997, sales jumped during the week it was in effect — but for the full quarter, it was a wash.

Nor is this alleged favor necessarily of much benefit to the ordinary family. A 2003 study found that Florida retailers responded to the incentive by setting prices higher during the tax holiday than after. In other words, they grabbed the "savings" for themselves...

...[and] every dollar that escapes the revenue collector is a dollar that must be recaptured somewhere else. In Illinois, the governor who endorsed the idea is also pushing an income tax increase to help close a huge budget deficit, which the sales tax holiday will enlarge.

In the end, taxpayers will have to bear all the expenses of state governments, either now or later.

Read the full article at Reason.

 

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