Taxes

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

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…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.

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  1. reimburshing

  2. You don’t know how profoundly depressing it is to see libertarians and conservatives make the fundamental error of thinking that the Federal government can run out of money.

    The truth is that any sovereign with a fiat currency and flexible exchange rates can create and spend as much money as it wants.

    The only danger is inflation, and that is not a danger during a recession.

    Now, what it should spend the money on is a whole different question. Unquestionably, it’s better to “spend” (go into deficit) by cutting taxes. Of course, that’s anathema to Democrats and progressives.

    Yes, it’s possible to understand the MMT (Modern Monetary Theory) and still be a libertarian.

    http://moslereconomics.com

    1. “The only danger is inflation, and that is not a danger during a recession.”

      It depends on the type of inflation you’re talking about.

      I agree that there’s little risk of traditional demand-driven inflation when industries are operating below capacity and unemployment is high.

      The real risk is money supply driven inflation brought about by a loss of confidence in the currency as a store of value, which will result in the government bond bubble bursting, the currency’s foreign exchange value tanking, import prices soaring, and everyone trying hard to not be the last in line to exchange their paper currency for something that the government can’t devalue.

    2. High enough inflation is functionally the same as running out of money.

      Personally, I don’t want to hear a word about tax cuts (unless we’re talking about a massive simplification effort that is revenue neutral) and more about spending cuts.

      Spending = taxes. Collecting less now just means our kids get the bill with interest.

      1. Meant to say “…until I see some spending cuts.”

    3. “The only danger is inflation.”

      Only?

      “…and that is not a danger during a recession.”

      What the crap man? In a recession prices are already inflated, that’s why they’re deflating. It isn’t the MOVEMENT of prices that is the problem, it’s the fact that prices aren’t in equilibrium that creates the improper resource allocation.

      1. Let me add that a Libertarian should not be supporting stimulus of any kind. Stimulus is by definition deficit spending. Tax cuts not accompanied by spending cuts do not diminish the size of government, all they do is insure that our children will live with an even bigger government burden than we do.

        1. Obviously I think your position is wrong, that deficit spending is often necessary to pull the nation out of a recession, and that the deficit can be decreased again (but certainly never eliminated entirely) after the crisis is over. We have the tools we need to do this. Millions of people could be employed in a matter of days; instead, people with very good hearts and good intentions will demand austerity which will achieve nothing but misery.

          Go to the site I linked, and read the Mandatory Readings there, and you will eventually come around to the neo-Keynesian position – it’s the only rational position in a world of fiat currency. (Most peoples’, and most libertarians’, intuition is based on a world of hard currency, which is a world we haven’t lived in since around 1971.)

          Ever wonder why every nation in the modern world runs a deficit? It’s because it’s the only way to grow the economy and the money supply.

  3. This is your country:

    http://www.top50states.com/images/outlineUS.jpg

    This is your country on stimulus:

    http://www.enchantedlearning.c…..ap/map.GIF

  4. wait if mass gets stimulus money for a sales tax holiday does nh (next door to mass with no sales tax) get stimulus money to make up for sales lost to mass when mass has the holiday? or should nh just get a subsidy from the feds to make up for the sales tax nh does’t have?

  5. “The key, of course, is permanent sales tax holiday.”

    I’m not so sure about that.

    For a country that’s had a bit of a problem with over-consumption, a sales tax isn’t exactly the worst thing in the world.

    Taxing consumption is certainly better than taxing production (i.e. earned income, payroll taxes, corporate earnings, interest income, capital gains, dividends, etc…)

    1. All taxes are bad for the same reason.

  6. The government is the real cause for inflation. They want us to spend our savings so they can have their losses back into their pockets.

    We help Americans move to Asia for jobs and

    1. SPAM DETECTED
      NO CARRIER+++

  7. Just buy everything from Amazon.com – the ultimate sales tax holiday.

    1. That is a very good point. If sales taxes went away, then internet sales would probably plunge.

  8. but the low- and middle-classes will feel the holiday more, since they spend a larger amount of their income than wealthier Americans.

    Unless they meant to say “proportion” or “percentage” rather than “amount”, that might explain why those Americans aren’t wealthier than they are.

  9. “The key, of course, is permanent sales tax holiday.”

    Obviously….

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