August 4, 2006
For immediate release
Media Contact: William Ahern (202) 464-5101
WASHINGTON, D.C.—Temporary suspensions of state sales taxes are becoming more popular, with 18 different “tax holidays” scheduled for 2006 in 14 states and the District of Columbia. However, a new Tax Foundation analysis questions whether sales tax holidays are good public policy (veiw the full analysis at http://www.taxfoundation.org/publications/show/1742.html).
“Tax holidays don’t actually boost retail sales overall, as supporters often claim,” said Mausolf. “Instead, consumers just change the timing of their back-to-school shopping. In fact, some research has asserted that even customers don’t benefit because retailers raise their prices to capture the savings.”
That hasn’t stopped tax holidays from becoming more popular, especially during a year that state coffers are overflowing from the booming economy.
“Politicians love them because they can claim credit for a tax cut without losing much revenue,” explained Jonathan Williams.
Most of the holidays last just three or four days, during which a list of approved products are sold with no sales tax. That usually amounts to a discount of 5 to 7 percent, depending on the state.
Because most of the approved products are back-to-school items like backpacks, children’s clothing, shoes and school supplies, states generally schedule the tax holidays in August.
“The timing is awfully convenient for politicians running for re-election in November,” commented Curtis Dubay. “The supporters of sales tax holidays are sometimes officials who would not vote for a permanent cut in the sales tax, even though that would give the state’s economy a real boost.”
The study is Number 63 in the Tax Foundation’s Fiscal Fact series, “Sales Tax Holidays: Politically Expedient but Poor Tax Policy,” by economists Jonathan Williams, Curtis S. Dubay and Johanna Mausolf.
Best known for its annual calculation of Tax Freedom Day®, 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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