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1 Janelle Cammenga, Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2020 1 (2020)

handle is hein.taxfoundation/tfslest0001 and id is 1 raw text is: Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2020 Janelle Cammenga Policy Analyst Key Findings 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 global levels. We are a 501(c)3) nonproft organization. ©2020 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 Sixteen states will hold a sales tax holiday in 2020, down from a peak of 19 in 2010 but unchanged from last year. Given the coronavirus crisis, Tennessee established a second sales tax holiday, targeting restaurants. 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. Sales tax holidays are not an effective solution to the current economic crisis, as the drop in consumption is caused by a public health crisis, not less desire to spend. Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a 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 effective for providing relief to low-income individuals. To give small tax savings to those with lower incomes, holidays give large savings to higher- income groups as well. Such political gimmicks distract from genuine, permanent tax relief. If a state must offer a holiday from its tax system, it is an implicit recognition that the tax system is uncompetitive. If policymakers want to save money for consumers, they should cut the sales tax rate year-round. FISCAL FACT No. 721 July 2020

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