A Holiday from Fiscal Responsibility

The case against sales tax holidays


It's August, with autumn looming, and that means something bad is happening. No, not Brett Favre scheming for attention. The bad thing is the spectacle of state governments from Texas to Vermont trying to buy off voters with their own money.

It's an annual ritual known as the sales tax holiday, which lets consumers make certain government-approved purchases without remitting the usual levy to the Department of Revenue. According to the Tax Foundation, 18 states will hold these events in 2010. The gimmick usually is deployed this time of year so that parents can save on school supplies and clothing.

In spite of the "back-to-school" label, you don't necessarily have to be a student or the parent of one to get the break. A colleague of mine used the opportunity to buy her husband a pair of golf shirts. That's because Illinois extends the preferred treatment to most clothing and shoes under $100.

The state exempts 24 different school supplies, including lunch boxes, transparent tape, and legal pads, but to qualify, they "must be used by students in the course of study." In Texas, backpacks under $100 are tax-exempt only if they are "used by elementary and secondary students." Good luck enforcing those requirements.

The relief allows politicians to depict themselves as stalwart champions of the average person. "I am confident this tax break will help students, families and businesses as they prepare for a new school year," said Florida Gov. Charlie Crist when he signed the law creating a sales tax holiday.

Right now, it can also be peddled as an ingenious form of fiscal stimulus. "This is a way to give our economy a shot in the arm," Illinois Gov. Pat Quinn insists. Some supporters even claim total revenue rises because of all the economic activity it generates.

But if sparing shoppers the sales tax is such a blessing, why don't our leaders get rid of it the whole year round? If it's a dose of adrenaline to a weak economy, why not repeat the treatment next month, and the month after? If we can increase state collections by suspending the sales tax, couldn't we increase them even more by abolishing it?

In reality, the exemption doesn't increase overall economic activity. It merely induces people to delay or accelerate purchases to fit into the time window. When New York had a sales tax holiday for clothing in 1997, sales jumped during the week it was in effect—but for the full quarter, it was a wash.

Nor is this alleged favor necessarily of much benefit to the ordinary family. A 2003 study found that Florida retailers responded to the incentive by setting prices higher during the tax holiday than after. In other words, they grabbed the "savings" for themselves.

All the claims about boosting revenue amount to castles in the air. Massachusetts canceled its holiday after feeling remorse about squandering nearly $15 million in sales taxes in 2008. The offsetting increase in income and corporate tax collections, by contrast, added up to less than $1.8 million.

Georgia likewise scrapped the program, on the theory that the state treasury didn't have $13 million to toss overboard. Illinois may lose $67 million on its 10-day spree.

The only plausible value of this ploy is to take business away from neighboring states. But if adjacent locales have their own tax-exempt periods, each state loses revenues and none gains sales.

Some people favor any measure that leaves more cash in the pockets of citizens. But if taxes are to be cut, it would make a lot more sense to cut them year-round on all goods, instead of providing a temporary benefit to favored sectors. "The government sticking its hand in the economy to create an artificial shopping rush is not productive in any way," says economist Mark Robyn of the Tax Foundation.

Reducing sales tax receipts, alas, does not reduce state outlays, which means that every dollar that escapes the revenue collector is a dollar that must be recaptured somewhere else. In Illinois, the governor who endorsed the idea is also pushing an income tax increase to help close a huge budget deficit, which the sales tax holiday will enlarge.

In the end, taxpayers will have to bear all the expenses of state governments, either now or later. So we may take a holiday today, only to find ourselves working overtime tomorrow.


NEXT: Eat It Up

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      1. Why hello there Cap’n, how’s you this morn’?

        1. Got an infection in my throat and I need a job. Other than that, I’m living in an Obama paradise.

          How are you?

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    3. Excellent contribution to the discussion. Just say FIRST!!!!!!!!! LOL!!!!!!!!!!!!!!!11 next time; you’ll look like less of a douche cause you won’t be acting like you’re not a douche.

  1. Tax holidays are unpatriotic!

    1. Is that Joe Biden behind that mask?

    2. But every day is a sales tax holiday in New Hampshire.

      1. Too bad it’s not also a property tax holiday there.

        I grew up in NH, and I remember the first time I went to Maine an bought something. Because the guy was charging more than the price tag, I thought he was trying to rip me off. Later on I found out it was the legislature trying to rip me off.

        1. Allow me to correct your post.

          Later on I found out it was the legislature trying to ripping me off.

      2. And liquor is cheaper too!

      3. And Delaware

  2. There is no system of taxation that makes any sense at all. Taxes are, in fact, a red herring. Spending is all that matters. And the only thing that matters when it comes to spending is how to get it to be as close to zero as possible.

    1. There is no system of taxation that makes any sense at all.

      The Georgist Single Tax makes sense if you accept George’s premises on property.

      Even if you dont – entirely – it still makes more sense than any other tax.

      1. What about usage fees? How do you calculate the “use fee” for the military? Assuming, say, someone attacks us.

        1. Well the fairtax is close if you assume one thing the military provides is a protection for your property, you pay a surcharge on the acquisition of that property. The more you buy the more you have to protect.

          Taxing income, effectively personal production, really doesn’t do that as well since the tax doesn’t coincide as well with there ‘stuff’ ends up.

      2. Your comment was very informative to me as I had not been previously familiar with Henry George and his ideas. I especially like that Henry George was so prescient about Marxism. However, I find that system of taxation no more sensible than any other. One, what is the purpose of said tax? Inevitably a large part of the purpose of any tax is to relieve those who collect and distribute/spend the tax from having to produce value themselves and sell their efforts to others in a free exchange. Two, who decides how much land is valued at and therefore how much the tax should be? More efficient to simply let the group appoint individuals to decide who gets to use what land for what purposes or to let the group vote more directly on land use issues. With a tax, the group still has to appoint people to assess the value of land, but in addition they need to appoint people to collect and distribute/spend the revenue. That’s more people than necessary. Besides, where would the land-lease-holder get the money to pay the tax? From other members of the group. So why not cut out the middle man and just let the group decide who gets to use what land for what purpose and stop screwing around with all this taxation business?

        1. I mostly agree with what you’re saying. I really, really dislike the “value” method of taxing land. It leaves the “value” completely out of your control — you could retire, and suddenly someone finds oil on the lot next door, and your property value shoots up, and now you can’t afford to live there anymore… it’s evil. A sligthly better solution is taxing at a fixed rate per area, or a fixed rate per street frontage (if streets are publicly owned), since this will not vary over time, except with the rate set by the legislature (as with all taxes).

          My preferred solution, however, is for every citizen (or resident) to pay $X a year, where X is the same for all citizens. We all get one vote, we all get the same protection from our military, why shouldn’t we all pay the same fee?

          1. I would limit voting only to those who pay taxes.

            1. I would limit it to white, land-owning males.

              1. I would limit it to me.

              2. Nice hood there Dixiecrat.

            2. That would be ethical for voting on spending. Social issues (what should be legal and illegal) you can’t make that case quite as well.

              Of course IMO very little should be illegal.

              And even less spent;p

        2. “…having to produce value themselves and sell their efforts to others in a free exchange.” Not at all. In fact, land values are ultimately the only value the government can directly produce.

          “Two, who decides how much land is valued at and therefore how much the tax should be?” The market does, through purchase and sale of land.

          “let the group decide who gets to use what land for what purpose and stop screwing around with all this taxation business?” The groups does, through the market.

      3. You’re pointing in the right direction. For those who aren’t familiar with the ideas of Henry George, may I suggest some resources?

        1. Henry George and the Reconstruction of Capitalism, linked at wealthandwant

        2. The Henry George Institute, at http://www.henrygeorge.org/

        3. a blog at http://lvtfan.typepad.com/

        4. Henry George’s bestselling book, in a modern abridgement, at progressandpoverty (the org one!)

    2. All taxes are immoral — they are theft. Replace them with fees for government services that people can choose whether or not to buy, and the theft (and most of the government) disappears.

      1. I don’t like the idea of government charging fees for services either, because it could theoretically justify them getting in to any goods or services. And when government does it, it skews the market. Even roads.

    3. You like replacing your tires every month and your car’s suspension every quarter?

      You like having your downtown septic system maintained, and making sure that all your neighbors maintain theirs so that your well provides clean water?

      You like paying for private inspection of bridges on interstate highways before you plan your trip, so that you know they’ve been maintained?

      You like paying privately for trash pickup, for fire protection, for ambulance, for police, for judges (?!), for prisons, and for all the other things which living in a complex urban culture requires?

      You like the idea that the poor people in your neighborhood or state may not be able to afford any education for their children; it will never ever have any negative effects on your or your children or anyone who matters to you in the least?

      I hope you can find a community of other people who feel the same way, and that it works really, really, well for all of you.

  3. Deval Patrick believes in tax holidays and a 25% increase in sales tax rates for the remaining 363 days of the year.

    1. There should be a 200% tax for blog whoring in the comments.

      1. Urkobold paid in advance.

  4. A 10% snark tax would completely eliminate the federal deficit.

    1. And 95% of the comments here.

      1. Nah, I can afford 10% of what Im paid to comment here.

  5. This is a case? More like flinging mud against the sales tax holiday to see if anything sticks.

    Next on reason: why prosititution should be illegal because some girls are easy.

    1. Men don’t pay prostitutes for sex.
      Most men can get find an easy girl and laid if they put their mind to it. The problem is that the damn women want to “talk”.

      Men pay prostitutes to leave.

      1. I’m not so sure of this… when you add up how much money you spend on a girl to get her to sleep with you (taking her to movies, bars, dinner, etc, and just the money-value of your time), it’s probably a lot cheaper to rent.

        1. I’m not disputing that.
          My point is that the money that is given to a prostitute is not for the sex.
          It is so you don’t have to waste your time listening to her tell you things that you could care less about.
          For example her feelings.

        2. If it flies, floats, or fornicates, you’re better off renting than buying.

      2. Not buying this “men don’t pay prostitutes for sex” thing, since it assumes that all men just want sex and don’t want to talk afterward.

        Some men are like that, they want to fuck and then leave — others don’t like sex with hookers precisely because there isn’t any emotional bonding there that is real.

        1. Some men prefer a sexual partner who is totally into them, rather than some disengaged hooker who is renting her body for money.

          I think the former makes for much hotter sex.

    2. +1.

      I’m for reducing just about any tax, any time, for any reason. So I was reading this with an eye for things to refute. I’m not sure anything was even worth refuting.

      “If we need a tax reduction it should be all year” ???? Uh … OK. Deal. In the mean time I’m still fine with only having tax reductions on every third tuesday that ends in an even digit, if that is all we can get. And I thought I was one of the naive utopians here.

      1. Yeah, I thought this was a bullshit non-libertarian post too.

  6. Sales tax holiday time in Texas sucks. Chapman’s got it pegged; people wait to purchase things until it’s sales tax holiday weekend. There’s no actual economic stimulus to be had, or at least not one significant enough to mention.

    1. Who cares if the state government gets less revenue, or the whether the “economy” gets a stimulus or not? Any tax holiday is a chance to avoid paying it for the person who matters most to me — me.

  7. Let’s not forget the “stick it to the man” factor here. A store can have a 10% off sale every month and nobody would care. “What’s 10%?” they think. However, give them what amounts to (in Texas, at most) a 9% off sale and everyone freaks out and drives 50 miles to the biggest outlet mall. WTF?!

    1. Here in Texas at least, it’s not so much the tax as the massive sales that stores have started having to compete for the business that weekend. The holiday is usually timed to coincide with the last weekend before school starts, which was already a very busy weekend as most folks leave their bts shopping until the last minute. Now it’s an event of almost Black Friday like proportions, with 4AM doorbuster sales and insane crowds.

      From a policy and business standpoint I think the whole thing is a bad idea, but from a consumer standpoint I can get my kid his annual wardrobe (which is a necessary purchase for growing smalls) for about 25-30% of (not off) what I’d pay for the same stuff any other point in the summer.

  8. The Florida data is counterintuitive. In Texas the shops seem to coordinate big sales events with the tax holiday. Lots of shoes marked down to $99, for example…

  9. Is Reason turning into Slate? You know, contrarian for the sake of contrarianness?

    Consider the formula for Slate/Reason:

    (1) Identify phenomenon;
    (2) Identify typical liberal/libertarian response;
    (3) Explain that the typical liberal/libertarian response is wrong, but not for the reasons that the conservatives/statists think;
    (4) Explain that the conservative/statist response is correct, but for the wrong reasons.

  10. The problem with these tax holidays is that there always for school supplies, or school clothes.
    When are we gonna have a tax holiday for beer or whiskey? A tax holiday for lap dances? A tax holiday for porn???

    1. Pretty sure that lap dances are a tax exempt service. Or else they actually cost $18.60.

      1. I’m guessing that the income from lap dances is vastly underreported, as with most cash only sales with no easy way for the government to prove any economic activity took place.

  11. This guy still writes for reason? Who cares about tax holidays? Plus this guy don’t get the 14th.

  12. He does, however, apparently take the 5th (or drinks one, anyway) prior to writing.

    What a crap post.

  13. Ideal taxation system:

    Flat rate federal income tax near 0%, no credits or progressive bullshit.

    Flat rate sales tax for state and local governments near 0%. All goods and services are taxed the same rate. No paternalist excise taxes.

    No property tax. The most immoral form of taxation- you shouldn’t have to rent your own property from the government.

    1. Ideal tax system: none.

      Near-ideal tax system: gigantic lottery where the government keeps 10% of the funds instead of 50%.

    2. Fairest tax system: Add up all the spending, and divide by the number of adults. Bill everyone that amount.

      Example: $3 trillion budget, 200 million citizens, everyone pays $15,000. As an added bonus, everyone has a stake in keeping spending reasonable

    3. I think a fair case could be made that one should not have to rent one’s (owned) home from anyone, the most just and logical and efficient form of taxation would be for all of us — individuals and particularly corporations — to pay a tax which amounts to the rental value of the land we claim for our own use. That value should exclude the improvements we or previous owners have made on the land, but should account for the value created by taxpayer-provided amenities like schools, roads, bridges, police, fire, ambulance, courts, prisons, libraries, public health, street-sweeping, plowing, paving, sidewalks, city water, sanitary sewers, stormwater runoff, transportation systems, trash pickup, recycling, and a myriad of other services which are financed through our public spending.

      All those services and many others are best financed through a tax in proportion to the value of the land each of us claims title to. A postage stamp far from infrastructure would cost little each month. An acre in Manhattan would cost a lot.

      Guess what would happen to the underused lots in Manhattan? They’d get put to their highest and best use.

      And that would create jobs, both in the redevelopment and in the buildings that redevelopment would create.

      Then landlords would start competing for tenants, instead of tenants bidding up space.

      And then entrepreneurs would start competing for workers, instead of workers being willing to take jobs for lower and lower wages.

      Which situation do you think would lead to widespread prosperity?

      Which situation would you like to leave for your children and grandchildren?

  14. “Some people favor any measure that leaves more cash in the pockets of citizens.”

    Count me as one of those people.

  15. Agreed, all something like this does is give politicians more chances to stick their fingers places they don’t belong. Which then produces more opportunities to be influenced by the wrong reasons. Can anyone say golf shirt lobby?

  16. Rather, the case against sales tax. There is no reason for this highly regressive tax to be levied at any time. Permanently eliminate it.

    Simply shut down the public school system, and let parents/private schools teach children like in days of yore. The public school system is not doing a good job of raising the nation’s children, and is way over priced.

    Without that over priced burden on the taxpayers, both the property and the sales taxes could be virtually eliminated.

  17. We’d be far better off — the bottom 99% of us, anyway — if instead of taxing purchase and wages and buildings and cars, we taxed land value.

    But so few of us understand the dynamics of land economics that we are unlikely to make such a wise and just move.

    If you are looking for how we might change things to leave our children and grandchildren a more stable, more just and more efficient society — and one which consumes less oil, by the way — take a long, careful look at the ideas associated with Henry George (b. 1839, Philadelphia; d. 1897, NYC). He provided an analysis which all too few of us know today, but which is difficult to find fault with, other than the fact that it removes the privileges which fuel the existing concentrations of income and wealth (which are so acceptable to those who have them).

  18. You’re right. Tax holidays do not inspire more spending; they just move the spending to a tax haven.

    What do higher taxes do? Think about it.

    Taxes collected as a percentage of GDP hover between 19-22% back to the 1800’s. There’s your bar. Deal with it.

  19. So if I’m a barren woman, a homo, or someone that just doesn’t want to have kids, I have to finance those that do?

    Some America.

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  21. Without that over priced burden on the taxpayers, both the property and the sales taxes could be virtually eliminated.

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  29. While I love the sales tax holiday, I don’t understand why the government is taxing me at all. They are already spending more than they are taking in, so why should they take from me? They are just going to blow it all and more anyway. It’s kind of disgusting.

  30. While I love the sales tax holiday, I don’t understand why the government is taxing me at all. They are already spending more than they are taking in, so why should they take from me? They are just going to blow it all and more anyway. It’s kind of disgusting.

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  33. In the end, taxpayers will have to bear all the expenses of state governments, either now or later.

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