The Stimulus That Lets People Keep Some Money: Sales Tax Holiday


…yet still involves the Federal government spending more money that they don't have. The Atlantic gets it right that sales tax cuts are good to get people spending more and eventually hiring more; they get it wrong (except maybe politically) that the Federal government should be reimbursing the states for their "lost" revenue, in an age when they have way less money to spare than even cash-strapped states.

From Daniel Indiviglio:

The holiday will be a very significant boost for consumers. On taxed goods, they will generally save somewhere between 3% and 8.25% on most discretionary purchases depending on their state, though a couple states have no sales tax. This is essentially like increasing consumers' disposable income by that amount.

The other really nice feature of a sales tax holiday is that it's one of the most progressive measures out there. Yet unlike most progressive tax schemes, the holiday doesn't stick it to the rich. Everyone benefits, but the low- and middle-classes will feel the holiday more, since they spend a larger amount of their income than wealthier Americans. But wealthier Americans will still benefit, and also still likely spend more.

Among possible stimulus measures, a sales tax holiday should be a standout. Yet the possibility hasn't been discussed at all. As additional proposals are being considered, an idea like this with so little potential downside and so much potential upside should have a prominent place in the debate.

The good results for business of Massachusetts weekend sales tax holiday on purchases under $2,500 last month. Steve Chapman at Reason Online attacks the idea of temporary targeted sales tax holidays as merely shifting spending rather than growing the economy and, minus any attempt to cut spending, fiscally irresponsible. Me, I just like the idea that people get to make purchases, even briefly, without the state forcing themselves into a cut. The key, of course, is permanent sales tax holiday.