Sales Tax Holidays Are a ‘Gimmick,’ Says Tax Policy Expert

August 6, 2012 - 11:08 AM

School Shopping Kidless

Back to school shopping in Newark, Del. (AP File Photo/Saquan Stimpson)

(CNSNews.com) - Sales tax holidays are gimmicks used by the government for political gain and to distract from real tax reform, according to the Tax Foundation.

A total of 17 states have held or will be holding sale tax holidays in 2012, which is 2 states fewer than the peak of 19 in 2010.

During a ‘sales tax holiday,’ certain goods, often school supplies, are exempted from sales taxes at the state level.

“Despite their political popularity, sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform,” said the report written by the Tax Foundation’s Joseph Henchman.

“Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits.”

The report also called them an “inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.”

North Carolina held its 2012 sales tax holiday on August 3-5 for school supplies, clothing, computers, computer supplies, sports equipment, and teacher supplies.

Louisiana has three separate tax holidays for similar products, as well as hurricane supplies and firearms.

Henchman’s primary argument against sales tax holidays is that any economic benefit that may result from the holiday will be short-lived, and those benefits tend to be exaggerated.

“Job creation is a frequent argument in support of sales tax holidays,” he wrote. “But this argument suffers from the same problems as the argument based on general economic growth. Any increase in employment will be modest and temporary, limiting the benefits.”

He added that large retailers enjoy sales tax holidays because it permits them to raise prices on specific goods, which ultimately misleads consumers about potential savings.

Henchman also argues that purchasing power belongs with consumers, not the government, which sets the rules for sales tax holidays.

“Tax holidays are a gimmick that distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Their creation came about as a way to avoid addressing the negative effects of high sales taxes.”

List of states with sales tax holidays in 2012:

Alabama, Arkansas, Connecticut, Florida, Georgia, Iowa, Louisiana, Maryland, Mississippi, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia. (For map of states with sales tax holidays in 2012, click here.)