Tax Analysts Blog

Sales Tax Holidays and the Planet of the Apes

Posted on Jul 31, 2013

Some aficionados of the genre may remember this from the 2001 remake of Planet of the Apes. After the climactic battle, former underwear model Mark Wahlberg and always alluring (even when dressed as a gorilla) Helena Bonham Carter convince man and ape to make peace and work together toward a common good. The idea of man and ape together shocks those who followed the seven Planet of the Apes movies. Man and ape don't reconcile. I experience that same shock when organizations on opposite ends of the tax policy spectrum agree. It has been happening more often and I plan on highlighting it when it occurs.

Today’s example is sales tax holidays. I have been criticizing these political gimmicks for more than a decade. I have called them political gimmicks. And I have noted that as policy choices they are dumber than a bag of hammers. Why? First of all, the government should never be in the business of encouraging people when to shop or what to buy. By definition, that is what sales tax holidays do. More importantly, they don’t work. Touted as a middle class break for “hard working families,” the holidays only encourage retailers to raise prices. Because rational people change the days they shop during the holiday (rather then spend more), consumers pay more, the government loses revenue, and the retailers get a small windfall. That is why retailers lobby hard for the holiday.

The Tax Foundation released a report recently slamming sales tax holidays currently in place in 17 states. I need to quote Joe Henchman in its conclusion:

      Sales tax holidays neither promote economic growth nor increase purchases. They create complexities for all involved, while inserting the political process into consumer decisions. By distracting high-tax states from addressing real problems with their tax system, holidays undermine efforts to provide legitimate relief to consumers in general and the poor in particular. Sales tax holidays are no part of sound tax policy.
The Tax Foundation has a reputation as a conservative (although I prefer Libertarian) organization. It is terrific on tax policy principles. But everyone knows that the organization favors low tax burdens and is critical of progressive tax policy. On the opposite end of the political spectrum is the Institute on Taxation and Economic Policy. ITEP – which I believe does earnest, thoughtful research, is pretty liberal. It’s a partner of Citizens for Tax Justice. It favors highly progressive tax systems.

But ITEP completely agrees with the Tax Foundation on the subject of sales tax holidays. Recently, ITEP released a report slamming sales tax holidays. ITEP stated that the holidays do not help consumers, provide a windfall to retailers, cost the states money, and create administrative problems. In other words, sales tax holidays are bad policy choices.

I am heartened that the Tax Foundation and ITEP agree. I am hoping that their constituencies will heed their advice and help end this horrible practice. I also hope there we find more instances of opposing organizations finding common ground.

Read Comments (2)

edward st. giorgioAug 10, 2013

At this URL,
The following is quoted:
My liberal friends hate the American Legislative Exchange Council (ALEC),
seeing it as part of some grand Koch brothers-inspired conspiracy to make the
rich richer and the poor poorer. I don’t hate ALEC, especially since it no
longer focuses on social issues. And I think it’s correct on the tax and
economics topics.

However, when reading the actual article at your site, I can not find any of
these words ALEC says came from here.

Can you tell me what article Mr David Brunori wrote that included that text ?

David BrunoriAug 10, 2013

Edward, The article I wrote quoting ALEC was published in State Tax Notes
magazine. The article I was quoting can be found here:

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