Hurricane Season Sales Tax Holidays: Save Now, Pay Later

Hurricane season is upon us and to help flip-flop-wearing Floridians prepare, Gov. Rick Scott recently approved a nine-day sales tax holiday, which ends Sunday.

Batteries, flashlights, generators, weather radios, and water are all on the list of things you can buy without paying the state's 6 percent sales tax.

The tax holiday, which is really a government stimulus in disguise, is just one of three that Scott has bestowed upon the state. Louisiana and Virginia have already held their hurricane season tax holidays. But in states not lucky enough to be the subject of Mother Nature's watery wrath, back-to-school events tend to win similar temporary tax reprieves. In 2013, 17 states put on tax holidays for education.

Gov. Scott and other politicians enjoy touting the benefits of these sales tax vacations because they are popular with voters. They say it helps the poor, and the retail rush boosts the economy. But are those claims true?

The short answer from the Institute on Taxation and Economic Policy is "no."

In a 2013 report, the institute addresses claims that the holidays inflate retail sales: 

Increased sales during sales tax holidays have been shown to be primarily the result of consumers' shifting the timing of their planned purchases.

And who are the consumers who are best able to shift the timing of their planned purchases?

Wealthier taxpayers are often best positioned to benefit from the holidays, since they have more flexibility to shift the timing of their purchases to take advantage of the tax break—an option that isn't available to families living paycheck to paycheck.

The report found other problems with the the economics of government-sponsored shopping seasons as well, including retailers exploiting them by temporarily increasing prices or watering down sales promotions, and the increase of administrative costs for state and local governments that normally collect the tax. 

In the long run, the study concludes,

Revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.

Steve Chapman came to the same conclusion in a 2010 article for Reason in which he asked:

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?

Might as well get your reduced-price chainsaws now! You'll pay the difference later anyway.