Ask The Experts: Are Sales Tax Holidays A Good Idea?
A number of states declare sales tax holidays from time to time. For example, during the back-to-school shopping season in early August, 17 of the 45 states that ordinarily charge a sales tax will declare that purchases of school supplies and apparel are exempt from this tariff on a particular weekend.
For consumers, who spend more than $600 on back-to-school items each year, according to data from the National Retail Federation, the ability to save as much as 7.25% certainly sounds appealing. It's a good reason to shop on that weekend.
For businesses, it means more traffic in their stores. And since consumers aren't paying sales tax, they are a bit less sensitive to prices. In other words, no need to slash prices on a sales tax holiday weekend.
Prevalent, but at what cost?
In all, 18 states have declared sales tax holidays of one form or another for 2013. Normally they are for two or three day periods, though Connecticut has a seven-day sales tax holiday in August for clothing and footwear. Some states have more than one tax holiday period, declared for different purposes.
But what does it mean for the economy? Is the consumer better off? What about the businesses? Paying less is always a good thing and it's hard to see how the business can lose on this kind of deal. But what about the taxpayer?
William Fox, Director, Center for Business & Economic Research in the College of Business Administration at the University of Tennessee, thinks these sales tax holidays have very little impact on the economies of the states that declare them. He also sees little benefit to the consumer.
“The evidence on that suggests the benefit is most for businesses,” Fox said. “The work that I have seen suggests businesses are less likely to have sales during a tax holiday, and maybe even increase their price a little bit. So the consumer isn't seeing much of a lower price.”
Others are equally skeptical. Mildred Robinson, professor of law at the University of Virginia, concedes some benefit to the consumer but is unsure to what extent it is a factor.
“Whether these are consumers who would be unable otherwise to afford that cost is unknowable,” she said. “If taxpayer relief is the objective, even with purchase limits in place the relief may be broader than is needed.”
Charles L. Ballard, professor of economics at Michigan State University, argues that sales tax holidays are plenty valuable, but more so as political capital than any sort of economic aid.
“In my opinion, these sales-tax holidays may make good politics,” he said. “Legislators who push for these things will reward themselves with glowing press releases, and anyone voting against will be portrayed as a Scrooge.”
In short, there are a number of competing interests and issues to consider in regards to sales tax holidays, but it appears they aren’t as great of a bargain as one would initially assume. At least that's the opinion of most of the experts that we queried.
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