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1 Joseph Henchman & Liz Malm, Sales Tax Holidays: Politically Expedient but Poor Tax Policy 2014 1 (2014)

handle is hein.taxfoundation/taxfaasb0001 and id is 1 raw text is: TAX w FOUNDATION Sales Tax Holidays: Politically Expedient but Poor Tax Policy July2014 By Joseph Henchman Liz Malm No. 222 Vice President of Lega Economist & State Projects ey Findings * 16 states, primarily in the southeastern U.S., will hold a sales tax holiday in 2014, down from a peak of 19 states in 2010. * Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence 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 sale 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 between 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 a sign 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.