Tax Holidays, Consumer Behavior, and Competitiveness

By August 5, 2010General, Taxation

This is the top half of a full page ad on the back of the A section of today’s Washington Post, prompted by Virginia’s tax holiday this weekend on the 5 percent sales tax for clothes and schools supplies.

Kohl’s must believe that lower taxes stimulate economic activity.

But is it good policy? In a recent study, The Tax Foundation reported, “Sales Tax Holidays Distort Consumer, Business Decisions, Provide Little Relief to Taxpayers“:

Eighteen states are offering sales tax holidays in 2010 – up from 16 in 2009 and 17 in 2008 – including 15 that exempt clothing, 10 for school supplies, six targeting computers, and five applied to Energy Star products. Tax Foundation Special Report, No. 182, “Sales Tax Holidays: Politically Expedient but Poor Tax Policy,” is available online at http://www.taxfoundation.org/publications/show/26533.html.

“Sales tax holidays are gimmicks designed to win political points for lawmakers,” said Tax Foundation Staff Economist Mark Robyn, who authored the paper with Tax Counsel and Director of State Projects Joseph Henchman and Adjunct Scholar Micah Cohen. “If lawmakers want to cut taxes, they should do so in a way that benefits everyone, no matter what they purchase or when they purchase it. Unfortunately, sales tax holidays only distract from genuine, permanent tax relief.”

Permanent, more competitive tax rates, then…

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