by Joseph Henchman, Liz Malm
July 31, 2014
16 states will hold a sales tax holiday in 2014. Sales tax holidays do not promote economic growth or significantly increase consumer purchases; they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings. Free advertising for what is effectively a paltry 4 to 7 percent sale leads many larger businesses to lobby for the holidays. Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating between products and across time, and distorting consumer decisions. Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.