Flat Tax Group: Stop Back-To-School Tax Holidays, Cut Taxes Year Round
A flat tax advocacy organization recommends states cut taxes and discontinue retail tax holidays, saying the temporary tax break for parents shopping for school supplies does not benefit low-income individuals as previously believed. However, retailers, threatened by a possible drop in anticipated sales, point to their own evidence suggesting that both businesses and state’s benefit from tax holidays.
The Tax Foundation asserts that the retail tax holiday is "poor tax policy," that does not increase spending or help low-income families.
According to the foundation, the nine to ten day period in late July and early August when some states offer consumers the opportunity to buy office necessities, clothing, computers and even U.S. Energy Star label appliances and guns without paying state taxes, is decreasing.
Get Our Latest News for FREE
In states such as Tennessee, the legislation was written to protect local governments from facing budget shortfalls by eliminating only the state’s portion of the tax, thus keeping local tax revenues intact.
For consumers, the tax-free holidays can make a difference in a family’s back-to-school budget. In the nine states, including Tennessee, that do not tax personal income but instead have higher sales tax rates around 7 percent, the savings can add up.
However, the foundation finds that consumers do not save money because retailers often raise prices during tax holidays to increase their revenues.
The findings are underscored by the slight downtrend in the number of states offering retail tax-free periods.
Last year 19 states offered shoppers tax-free holidays. However, in a more challenging economy, only 17 states have implemented back-to-school tax breaks in 2011.
Illinois reversed course after hosting a tax holiday last year. Gov. Toi Hutchinson told USA Today the state simply could not afford to withhold the state sale taxes again this year.
Of the states still offering a tax holiday, some are reducing the list of items that can qualify for a retail tax break.
Florida is continuing its tax holiday for clothing under $75 and school supplies under $15, but has discontinued its hurricane preparedness tax holiday. As result, items purchased to shield homes from water damage during hurricane season will be fully taxed.
Last year the state also experimented with a shortened three-day holiday.
Florida retailers, upset with the change, have released some of their own numbers proving that the tax holidays do benefit the state.
According to the Florida Retail Federation, the popularity of last year's state tax holiday actually increased the purchase of taxable goods, raising Florida's state revenue by $7 million.
The program's popularity also drove Massachusetts and Arkansas to offer its residents tax holidays this year for the first time ever.
According to the Tax Foundation, retailers are eager about the tax holidays because the program offers stores "free advertisement."
The Tax foundation advocates that the sales tax should be cut year round rather than withheld for a few days each year.
"If a state must offer a 'holiday' from its tax system, it is a sign that the state's tax system is uncompetitive," the foundation states. "If policymakers want to save money for consumers, then they should cut the sales tax rate year-round."
