January 6, 2010
Sales Tax Holidays Are Political Gimmicks, Distort Consumer, Business Decisions, According to Tax Foundation Report
Washington, DC, January 6, 2010 - Oklahoma Sen. John Sparks (D-Norman) has introduced a bill to create a tax-free weekend for purchases of handguns, shotguns, and rifles, but a recent report from the nonpartisan Tax Foundation shows that sales tax holidays—whether applied to guns, school supplies, or other products—are little more than political stunts that distract from much-needed permanent tax reform.
"Sales tax holidays do little to stimulate new sales and, more importantly, distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform," said Tax Foundation Staff Economist Mark Robyn, who authored Tax Foundation Fiscal Fact No. 205¸ "Second Thoughts About Oklahoma's Second Amendment Tax Holiday Proposal," available online at http://www.taxfoundation.org/publications/show/25676.html. A related paper on sales tax holidays, Tax Foundation Special Report No. 171, "Sales Tax Holidays: Politically Expedient but Poor Tax Policy," is available online at http://www.taxfoundation.org/publications/show/25052.html.
"If consumers need a 'holiday' from the state's sales tax, it's a sign that the sales tax needs to be fixed," Robyn said.
Rather than stimulating new sales, sales tax holidays merely shift them in time. Sales tax holidays also introduce unjustifiable government distortions into the market without providing any significant boost to the economy or relief to taxpayers.
A better approach is to have a retail sales tax with few exemptions. Broad-based sales taxes, encompassing all end-user products, allow the sales tax rate to be as low as possible. Inversely, a narrow sales tax base that contains numerous exemptions may benefit some consumers but leaves others out and leads to higher sales tax rates on non-exempt products.
"If lawmakers want to cut sales taxes, they should do so in a way that benefits all consumers regardless of what they buy or when they buy it," Robyn said. "Sales tax holidays distort consumer choices while favoring certain industries over others, increase tax code complexity, and distract from real, permanent tax relief."
Moreover, using the tax code to promote certain constitutional rights can undermine those rights by suggesting that they need governmental encouragement in order to be fully enjoyed.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact No. 205¸ "Second Thoughts About Oklahoma's Second Amendment Tax Holiday Proposal," is available online at http://www.taxfoundation.org/publications/show/25676.html. To schedule an interview, please contact Tax Foundation Manager of Media Relations Natasha Altamirano at (202) 464-5102 or naltamirano@taxfoundation.org.