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Sales Tax Holidays: Politically
Expedient but Poor Tax Policy 2015
By Scott Drenkard & Joseph Henchman
Director of State
Legal & State Projects
· 18 states, primarily in the southeastern U.S., will hold a sales tax holiday in
2015, down from a peak of 19 states in 2010.
· Sales tax holidays do not promote economic growth or significantly
increase consumer purchases; the evidence shows that they simply shift
the timing of purchases. Some retailers raise prices during the holiday,
reducing consumer savings.
· Sales tax holidays create complexities for tax code compliance, efficient
labor allocation, and inventory management. However, free advertising for
what is effectively a paltry 4 to 7 percent sale leads many larger businesses
to lobby for the holidays.
· Most sales tax holidays involve politicians picking products and industries
to favor with exemptions, arbitrarily discriminating between products and
across time, and distorting consumer decisions.
· While sales taxes are somewhat regressive, this does not make sales tax
holidays an effective tool for providing relief to low-income individuals. In
order to give a small amount of tax savings to those with lower incomes,
holidays give a large amount of savings to higher income groups as well.
· Political gimmicks like sales tax holidays distract policymakers and
taxpayers from genuine, permanent tax relief. If a state must offer a
“holiday” from its tax sys