All the claims about boosting revenue amount to castles in the air. Massachusetts canceled its holiday after feeling remorse about squandering nearly $15 million in sales taxes in 2008. The offsetting increase in income and corporate tax collections, by contrast, added up to less than $1.8 million.
Georgia likewise scrapped the program, on the theory that the state treasury didn't have $13 million to toss overboard. Illinois may lose $67 million on its 10-day spree.
The only plausible value of this ploy is to take business away from neighboring states. But if adjacent locales have their own tax-exempt periods, each state loses revenues and none gains sales.
Some people favor any measure that leaves more cash in the pockets of citizens. But if taxes are to be cut, it would make a lot more sense to cut them year-round on all goods, instead of providing a temporary benefit to favored sectors. "The government sticking its hand in the economy to create an artificial shopping rush is not productive in any way," says economist Mark Robyn of the Tax Foundation.
Reducing sales tax receipts, alas, does not reduce state outlays, which means that every dollar that escapes the revenue collector is a dollar that must be recaptured somewhere else. In Illinois, the governor who endorsed the idea is also pushing an income tax increase to help close a huge budget deficit, which the sales tax holiday will enlarge.
In the end, taxpayers will have to bear all the expenses of state governments, either now or later. So we may take a holiday today, only to find ourselves working overtime tomorrow.
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