Sales tax break idea is broken

By Business Observer Staff
| 7:08 a.m. August 2, 2013
| 2 Free Articles Remaining!

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Some tax wonks in a Washington, D.C., office are party poopers in Florida's much-celebrated three-day sales tax holiday, scheduled for Aug. 2-4.

The analysts at the Tax Foundation, a non-partisan tax research group, nonetheless seem to have some valid points. The foundation, in a new report, says “temporary rollbacks of sales taxes, despite being sold as a boon for consumers and businesses, actually impose significant costs on both groups without yielding significant benefits.”

The study lists several tax-holiday specific problems:

It basically only shifts the timing of purchases, and doesn't promote significant economic growth. Some retailers, the study found, raised prices during the holiday, which reduced consumer savings.

It creates issues for code compliance, labor and inventory for many retailers, yet large businesses lobby hard for the holiday for “free advertising.”

It provides an opportunity for politicians to pick products and industries to favor with exemptions;

It does provide savings for low-income individuals, the report states, but the impact is often exaggerated and it also provides the same savings for other demographics.

There are 17 states, mostly in the Southeast, that plan a sales tax holiday in 2013, the foundation reports. “Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief,” Joseph Henchman, Tax Foundation vice president for legal & state projects, says in a statement. “If a state has to offer a 'holiday' from its tax system, it's a sign that there's a problem with the system itself. If politicians want to save money for consumers, then they should cut the sales tax rate year-round.”