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1 Scott Drenkard & Joseph Henchman, Sales Tax Holidays: Politically Expedient but Poor Tax Policy 2016 1 (2016)

handle is hein.taxfoundation/saltxhody0001 and id is 1 raw text is: TAXS FOUNDATI ON SPECIAL REPORT No. 233 July 25, 2016 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non-profit organization. @2016 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org Sales Tax Holidays: Politically Expedient but Poor Tax Policy 2016 By Scott Drenkard Joseph Henchman Director of State Projects Vice President, Legal & State Projects Key Findings * 17 states, primarily in the southeastern U.S., will hold a sales tax holiday in 2016, down from a peak of 19 states in 2010. * Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings. * Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a paltry 4 to 7 percent discount leads many larger businesses to lobby for the holidays. * 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.

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