OP-ED | The Important Message of the Sales-Tax Holiday
It’s that time of year again, folks. Not only are my kids gearing up for a much-needed return to school, but sales tax holidays are sprouting up like weeds across the land of the free.
Nothing gives me more pleasure than to see weary taxpayers liberated from their shackles, free to spend their disposable income without the hand of the Connecticut Department of Revenue Services reaching into their wallets for yet another slice of the pie.
While other states like Louisiana exempt from the sales tax every purchase under $2,500 — excluding only vehicles — the generosity of the DRS has its limits. From Aug. 18 to Aug. 24, the state will waive the 6.35 percent sales tax only on clothing and footwear under $300. Like most consumers, I’d like to see a broader sales tax holiday. But when annual employee retirement benefits are equivalent to more than half the cost of the state’s payroll, Connecticut lawmakers don’t want to give away the store, so to speak.
Even in neighboring Massachusetts, which is regularly mocked as Taxachusetts, the holiday from the 6.25-percent sales tax lasted only two days (Aug. 10-11) but the exemption extended to just about every single-item purchase up to $2,500. The estimated revenue loss to the state — forgive me, “the Commonwealth” — was estimated at $20 million.
At least 17 states have enacted sales-tax holidays. Most have timed those holidays to coincide with the need of families to shop for back-to-school purchases, limiting the exemption to such items. But many have expanded the list to include computers and hurricane-season building and safety supplies. Much to the horror of gun-control advocates, Louisiana’s sales tax holiday even includes firearms and ammunition. Interestingly, conservative South Carolina put the kibosh on a separate gun sales tax holiday back in 2010.
As you might imagine, some people just can’t stand the idea of suspending a tax — any tax. Matt Gardner, executive director of the Institute on Taxation and Economic Policy, told McClatchy Newspapers he has seen no evidence that tax holidays “have a big impact on sales.”
“They are going to have to increase some other tax or fee or make budget cuts,” Gardner said of lawmakers. “From that perspective, it’s not clear that anyone benefits.”
Perhaps the losses aren’t as great as they seem. In Florida, the sales tax holiday was estimated to cost the state treasury upward of $28.3 million in 2010. But retailers estimated an additional $7 million in revenue was generated by consumers purchasing non-exempt items they wouldn’t have ordinarily bought.
During its week of tax-free glory, Connecticut expects to lose in the neighborhood of $8 million. There are no reliable figures on how much in revenue will come from additional sales of non-exempt items, but it stands to reason that if I go to the Target in Torrington to buy slacks for my son, a non-clothing item in another section of the store will prompt me to open my wallet.
Consequently, it also stands to reason that stores will increase their staffing levels during the upcoming week, giving more hours to part-time employees. So, contrary to what Gardner said, it is indeed “clear” that someone “benefits” from the sales tax holidays — and it’s not just the retailers and their employees. More employees working longer hours means more taxable income for the worker, resulting in a higher volume of income tax withholding for the state.
No one could plausibly assert that sales tax holidays actually increase revenues to state treasuries. But permit me to indulge in the guilty pleasure of starving the beast of state government for just a few days.
Perhaps the most delicious irony is that sales tax holidays amount to a rare and grudging admission by otherwise tax-happy government officials that lower taxes don’t just benefit the wealthy and that they actually encourage economic activity across multiple income levels. The satisfaction I get from hearing that message is well worth the $8 million in lost revenues.