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Let’s Cancel the ‘Holidays’

Sales-tax breaks are popular, but they’re lousy fiscal policy.

The principles of sound taxation are few, and rather simple. Broad base, low rate. Easy to understand. Maximum feasible transparency. Don’t pick winners and losers.

That’s why so many economists and policy analysts — right, left, and everything else — agree that sales-tax “holidays” are just plain dumb.

Politicians love ’em, of course. Since New York started the phenomenon in 1997, governors and lawmakers from Florida to Massachusetts, Connecticut to Missouri have approved short-term relief from sales taxes many times. Items exempted include clothing, ENERGY STAR products, food, hurricane-preparedness equipment, and — Mississippi being Mississippi — firearms/ammo.

Sadly, the American Southwest is not immune from the craze. Oklahoma and New Mexico kick off their back-to-school holidays one week from tomorrow, followed by Texas on August 11th. (It will be the third, and mercifully final, exempt-a-palooza for the Lone Star State in 2023.) In October, Nevada will briefly free members of the National Guard and their families from the sales tax.

Effective vote-buying, it gives SPPI no joy to report, rarely makes for wise policy. The Tax Foundation regularly issues blistering critiques of sales-tax holidays. The organization’s latest broadside argues that they

neither promote economic growth nor increase purchases. They create complexities for all involved, while inserting the political process into consumer decisions. By distracting high-tax states from addressing real problems with their tax systems, holidays undermine efforts to provide legitimate relief to consumers in general and low-income individuals in particular.

No taxpayer, of course, should be denounced for taking advantage of a completely legal opportunity to escape the burden of any levy. (Especially when inflation is worse than it’s been in decades.) But as for the decisionmakers in legislatures and governors’ offices, there are ample reasons for condemnation. When Americans for Prosperity and the Center on Budget and Policy Priorities agree, notice should be taken. Kudos to Arizona, Utah, Colorado, and California for taking a hard pass on sales-tax holidays. Oklahoma, New Mexico, Texas, and Nevada should do the same.

By D. Dowd Muska

Dowd brings nearly 30 years of research and writing experience to the Institute. A veteran of several think tanks, he is an expert on government at the municipal, county, state, and federal levels.

Raised on an apple orchard in the Connecticut River Valley, D. Dowd Muska is a researcher, writer, editor, and commentator. His focus is the nexus of fiscal policy, economic development, and technology.

Mr. Muska is the author of numerous policy studies, and his writing has appeared in newspapers throughout the nation, including the Las Vegas Review-Journal, The Detroit News, the Orlando Sentinel, the Cape Cod Times, the Santa Fe New Mexican, the Hartford Courant, the Waco Tribune-Herald, the Albuquerque Journal, the New Haven Register, and The Oklahoman. A graduate of The George Washington University, he lives in the Albuquerque metro area, but has started (very) early planning for a relocation to the Sierra Blanca in Lincoln County, New Mexico. He recently launched the Substack platform No Dowd About It.

One reply on “Let’s Cancel the ‘Holidays’”

If tax holiday for educational tool is good for kids, why stop at just a few days? Why not make it yearly round? If the goal of improving education is worth a tax holiday, why not extend to educational services such as private math tutoring? By this logic, why not school choice/voucher?

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