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1 Joseph Henchman, Sales Tax Holidays: Politically Expedient but Poor Tax Policy 1 (2013)

handle is hein.taxfoundation/taxfaafc0001 and id is 1 raw text is: Executive Summary Sales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back- to-school supplies, clothing, computers, hur- ricane preparedness supplies, products bearing the U.S. government's Energy Star label, and even guns. High-tax New York State sparked the trend in 1997 as a way to discourage border shopping. In 2013, 17 states will conduct sales tax holidays, down from a peak of 19 states in 2010 (see Table 1). At first glance, sales tax holidays seem like great policy. They enjoy broad political support, with backers arguing that holidays are a highly visible form of tax cut and provide benefits to low-income consumers. Politicians and other supporters routinely claim that sales tax holi- days improve sales for retailers, create jobs, and promote economic growth. Key Findings * 17 stres, primariy in the southeastern U.S., wi// hold a sales tax holidly in 2013, dlown from a peak of 19 states in 2010. * Sales tax holidlys do not promote economic govwth or signficantly inerase consumer purchases; the evidence shows that the y simply shi# the timing ofpurchases. Some etrailers rZise prices during the holidy, rdcring consumer savings. * Sales tax holidays c;rate compleities for tax code compliance, efficient labor a//ocation, andi invenry management. However, fre advertising for what is effectivey a pa/ry 4 to 7/prcent sae leads many larger businesses to lobby for the holidays. * Most sales tex holidays involve politicians picking products and industries to favor with exemptions, arbirarily discriminating between products and aross time, and distorting consumer decisions. * Whi/c sales taxes are somewhat regessive, this is often exaggeated to se// the idea that sales tax holidays ar an efectine way of prviding reliefto the poor. To give a small amount oftax savings to low-income individuals, holidrys give a large amount to others. * Political gimmicks like sales tax holidrys distrrct policymakers and taxpayers fron genuine, permanent tax rlief Iffa state must offer a holidayfrm its tax system, it is a sign that the starci tax system is uncompetitie. Ifpolicymakers want to save money for consumers, then they should cut the sales tax ate year-rund. The author would like to thank Mark Robyn and Micah Cohenfor their work as co-authors ofprevious editions ofthis report. July 2013 No. 209 Joseph Henchman Vice President of Legal c' State Projects PE IL CL

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