Retailers, consumers and prices
Check out a study that calls sales tax holidays poor tax policy.
With a number of states wrapping up back-to-school sales tax holidays, the Tax Foundation, which describes itself as a nonpartisan organization that monitors fiscal policy at the federal, state and local levels, called such exemptions “nothing more than political gimmicks that do little to help consumers.”
The Tax Foundation said such ”holidays,” which the group said amount to a 4 to 7 percent price reduction for consumers for only a brief period, simply favor certain industries over others and increase tax code complexity. In some cases, some retailers simply raise prices during a “holiday,” effectively absorbing the benefit, the group said.
“If a state must offer a ‘holiday’ from its tax system, it’s a sign that the state’s tax system is uncompetitive – something that must be addressed with permanent reform,” Tax Foundation staff economist Mark Robyn said in a statement.
“In order to provide lasting relief to consumers, policymakers should cut the sales tax rate year-round, while broadening the sales tax base to include all goods and services would ensure that government would be able to raise necessary revenue in the least economically distortionary way,” said Robyn, one of the report’s authors.
Many states that levy sales tax on clothing offer a short break on the tax in the summer, which, in turn, spurs back-to-school shopping.
Ten states, including Virginia, offered shoppers a chance to buy tax-free last weekend, with most states offering a tax break on clothing up to $100 per item, FBR Capital Markets noted in a new report.
What’s one way to get reluctant shoppers back into the stores? Give them a sales tax holiday — or two or three.
That’s what the National Retail Federation is urging the government to consider as part of the economic stimulus plan being debated in Washington.