Sales tax holidays are a good idea

Krystle Weeks Contributor
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It’s that time of year again when students head back to the classroom to embark on the joys of learning.  Parents will assume the arduous chore of back-to-school shopping to ensure that their children are well equipped for their learning endeavors.  This task hits Americans’ pocketbooks and wallets hard.

Currently, 16 states offer sales tax holidays for parents shopping for school supplies and clothing items.  According to a Rasmussen Poll conducted earlier this month, 62 percent of parents favor sales tax holidays and 60 percent of those surveyed say they would be more likely to shop during a tax holiday.

Tax holidays are also welcome by retailers, as the recession continues to depress sales.  Laurie Peterson Aldrich, president of the Virginia Retail Merchants Association, says that Virginia’s sales tax holiday is a “win-win for everyone” because it provides a “shot in the arm” for retailers while also providing relief for families.  She points to a study showing that Florida’s sales tax holiday actually boosts tax revenue, in part by increasing employment and the amount of overtime that employees work.

Virginia’s sales tax holiday has been well received by Gov. Robert McDonnell, who says he has no doubt that the sales tax suspension will help stimulate the local economy.

There are critics who say the holiday may make political sense but not necessarily economic sense.  They question whether a tax holiday succeeds in generating more sales and stimulating the economy.  Groups like the Tax Foundation and the Heritage Foundation make a persuasive argument that across-the-board cuts would be more beneficial than a weekend or a full week break from the sales tax.  Unfortunately, across-the-board tax cuts are unlikely to be implemented in most states, considering the budgetary and political obstacles such cuts would face.

A variety of organizations, including the conservative Tax Foundation and the liberal Center on Budget and Policy Priorities, mock sales tax holidays as nothing but “gimmicks,” but strong evidence indicates that these tax reprieves are working.  According to Florida Tax Watch, Florida’s sales tax holiday has generated a 17 percent increase in sales and has become the third largest shopping day of the year (behind the day after Thanksgiving and Christmas Eve).  Florida’s tourist economy is heavily dependent on consumer spending, and since the holiday was enacted, consumer spending has increased by 26 percent.

Other states with tax holidays have experienced similar sales increases.  For example, both Maryland and Illinois have embraced sales tax holidays. Illinois Governor Pat Quinn cites a 10 percent increase in sales at Walgreens stores throughout the state as proof of the tax holiday’s “success.”

Like many states, Maryland is experiencing a budget shortfall which has led to mandatory furloughs for state employees. To close this gap, Gov. O’Malley proposed a 1 percent increase in the sales tax rate even while supporting a sales tax holiday.

O’Malley realizes that the sales tax holiday will help mitigate both the economic and political damage of his tax increases. Unfortunately, the chances of an across-the-board tax cut for Maryland taxpayers in the near future are about as good as the chances of George Soros moving to Maryland to run for Baltimore County Assessor.  It isn’t going to happen.

While it is understandable that there is disagreement among legislators and policy experts about whether sales tax holidays benefit families and retailers as much as across-the-board tax decreases do, sales tax holidays are certainly better than nothing.

Working families have been able to save thanks to the sales tax holidays, and retailers have experienced increased sales and revenue.  Until state and local governments realize that permanent tax reforms should be implemented, a sales tax holiday is an idea that we should all support.

Krystle D. Weeks is the web editor for the Family Research Council.