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1 Janelle Cammenga, Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2019 1 (2019)

handle is hein.taxfoundation/slstxhol0001 and id is 1 raw text is: Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2019 FISCAL FACT No. 666 July 2019 Janelle Cammengat Policy Analyst 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) nonprofit organization. ©2019 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 Key Findings Sixteen states will hold a sales tax holiday in 2019, down from a peak of 19 in 2010 and from 17 last year. Wisconsin did not continue its one-time holiday, and Louisiana suspended its sales tax holiday program effective July 1, 2018. Massachusetts had established a one-time sales tax holiday for 2018, but starting this year reinstated it as an annual holiday. Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence (including a 2017 study by Federal Reserve researchers) 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. To give small tax savings to those with lower incomes, holidays end up giving large 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, they should cut the sales tax rate year-round. t The author would like to acknowledge the research assistance of Brittany Moore in compiling the data for this report. taxfoundation.org

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