Group says sales tax holiday bad policy | Arkansas Blog

Tuesday, July 25, 2017

Group says sales tax holiday bad policy

Posted By on Tue, Jul 25, 2017 at 9:38 AM

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The Tax Foundation has issued its annual reminder that sales tax "holidays," such as Arkansas's coming "holiday" Aug. 5-6 for school clothing and supplies, are nothing more than unproductive gimmicks.

I don't agree with all the Foundation's work, but here, yes.

Sixteen states, down from 19, still offer such gimmicks. Arkansas, was relatively late to the game.

Sales tax holidays create additional tax compliance costs, but larger businesses tend to lobby for the holidays as a form of free advertising.

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.
And never mind all the vagaries of retailing, such as when is a sale really a sale and whether a local purchase, even with the sales tax exemption, is actually cheaper than an alternative source.

The Tax Foundation is driving for bigger game — lower income tax rates for its wealthy patrons. But that doesn't mean they're wrong about this gimmick.

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