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1 Scott Drenkard & Joseph Bishop-Henchman, Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2018 1 (2018)

handle is hein.taxfoundation/sltxhldy0001 and id is 1 raw text is: SPECIAL REPORT No. 240 July 2018 Sales Tax Holidays: Politically Expedient but Poor Tax Policy, 2018 Scott Drenkard Director of State Projects Joseph Bishop-Henchman Executive Vice President 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. @2018 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 Key Findings * Seventeen states will hold a sales tax holiday in 2018, down from a peak of 19 states in 2010, and up from 16 states last year. Wisconsin created a sales tax holiday for the first time, New Mexico will hold an additional holiday for items purchased from small businesses, and Louisiana suspended its sales tax holiday program effective July 1, 2018. * 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. 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. The authors would like to acknowledge the research assistance of Ben Strachman in compiling the data for this report.

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