by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Two days of tax-free shopping, a chance to buy that new freezer or computer or necklace — or simply to stock up on school supplies, toiletries, and batteries — without having to pay the state’s usual 6.25 percent levy on purchases: What’s not to like? If experience is any guide, malls will be thronged with shoppers, and $25 million that would otherwise have enriched the state Treasury will remain in the pockets of private citizens. It’s all good, right?
Tax-free weekends are little more than a stunt, a dose of fiscal snake oil that cures no ills, but merely provides momentary relief from the pains of overtaxation. The yearly respites from sales taxes are popular, and politicians are happy to flaunt them as evidence of their taxpayer-friendly bona fides. “This is an economic win-win for families, businesses, and the Commonwealth alike,” state Senator Michael Moore exulted after last year’s tax holiday was enacted.
It would be pretty to think so. But there is prodigious evidence that sales tax holidays, which are scheduled this year in 16 states besides Massachusetts, don’t increase overall sales and don’t boost economic growth. Sure, retailers will see a lot of traffic next weekend — but it will largely come at the expense of sales they would have rung up earlier or later in the season if customers hadn’t adjusted the timing of their purchase to take advantage of the tax break. When New York analyzed the results of suspending its sales tax on clothing for seven days in January 1997, it found that sales during the no-tax week were 73 percent higher than was typical for a week in January. Yet clothing sales for the full quarter were virtually unchanged from the year before.
On the whole, sales tax holidays don’t stimulate new sales; they only shift the timing of anticipated sales.