This weekend marks Tennessee’s annual “sales tax holiday,” where the government generously allows you to keep your seven percent sales tax on select purchases like school supplies, computers, and clothing. It’s hard to complain about our state foregoing some $8-10 million a year in tax revenue, but I’m going to be that guy. Sales tax holidays are a rip-off. As the Tax Foundation’s Joe Henchman proves, tax-free weekends like that coming up in Tennessee are “politically expedient but poor tax policy.” The politically expedient part is pretty much the only reason 17 states still hold these annual rites, because they certainly don’t provide a positive economic impact. Here are a few reasons—raised by Henchman in this analysis—that sales tax holidays fall flat:
- They don’t encourage additional consumer spending, they just change the timing of consumers’ spending habits, sometimes to their own detriment.
- Because they only change the timing of purchases, tax holidays may sometimes harm businesses by weakening sales in the run up to the holiday period, distorting the market.
- By using gimmicky “holiday” teasers, politicians can wave a shiny object in taxpayers’ faces once a year, kicking the can down the road on more meaningful, long-lasting tax reforms (such as phasing out the Hall Income Tax on stocks and bonds).
- With limits on the types of purchases that qualify for tax relief, the government effectively picks winners and losers when it comes to the products people purchase on tax holidays.
Rather than a weekend free of taxes, across the board tax cuts or the elimination of certain taxes altogether are not only better for the economy, but also equally fair to all taxpayers, not just those who need a new computer or pair of jeans at a certain time of the year. So even if you take advantage of the “tax-free” purchases this weekend, know that there are better ways to keep your hard-earned money in your pocket. -Justin Owen Enjoy the Beacon blog? Help us keep it going with a tax-deductible gift.