Tax-Free Weekend: A Shortsighted Gimmick

Like the next guy or gal, I don't especially like paying taxes, but it's a necessary part of society. This past weekend, Aug 13-14, was a "tax holiday," where no sales tax was collected for purchases under $2,500. So, we bought a couch, which we had been putting off for a year or two. Not bad because it "saved" us $100. Last year we did something similar on that tax holiday, buying a stove and a trunkful of booze. (Alcohol was subject to the sales tax then.) A couple years before that it was a computer monitor.

These were completely missed opportunities for the state to collect sales tax for items I would have bought anyway. Instead, I timed those purchases to avoid sales tax. I'm sure this was true for a great many purchases statewide.

It is an odd psychological thing going on. Retailers had been advertising the tax "savings" for a few week, and stores were extra busy compared to a normal summer weekend with people looking to save their 6.25 percent. But if instead everything were on sale at 6 percent off, there would have been no such rush. The anti-tax/anti-government fervor wins.

Was the weekend a net gain for the state? I have no idea. What's the balance of the $20.5 million in lost sales tax revenue vs. the corporate tax on retailers' profits for their added revenue? We were encourage to buy from local vendors and national chains. Did that flat screen TV you may have bought at Best Buy benefit anyone locally? Best Buy headquarters in Minnesota while the TV was most likely made in China or South Korea.

Quite a few states have tax holidays. According to the Wikipedia article, all but a few are southern states (where anti-government sentiment is higher?), and most mention school supplies and clothing as targeted spending areas. Louisiana has one for firearms and ammunition. (I am not making this up!)

I think this idea is a gimmick. An approach with more benefits closer to home would be to target local, Massachusetts businesses. It would be unworkable to only give the holiday to items made in-state. Perhaps instead suspend the meals tax every Saturday in August? School-related items seems a good idea, as does energy-saving devices and equipment, or even home infrastructure items. The $20.5 million in foregone taxes translates to $330 million in purchases. The giveway should be tuned to produce a greater benefit to public policy and the Massachusetts economy.