December 24, 2008

Evaluating the National Retail Federation's "Tax Holiday" Idea

Yesterday the National Retail Federation published an open letter to President-to-be Barack Obama urging that come January, Obama's stimulus package should including a national "sales tax holiday," three ten-day periods in 2009 during which states that normally collect sales taxes on retail purchases would stop collecting them.

A new Citizens for Tax Justice report takes the shine off this idea a bit, noting a few fairly important reasons why a tax holiday might be not the right answer for America at this time.

Among them:
  • As with state sales tax holidays, it's hard to know whether the benefits would go to consumers or retailers.
  • To the extent consumers would be better off, the savings would go to even the very best-off families. No effort could be made to target these savings to families hit hardest by the current downturn.
  • Even if Congress likes the idea, that's not enough to implement it. Every state with a sales tax would have to pass legislation to make this work. And then every retailer in these sales-tax states would have to train workers and program computers to stop collecting state sales tax (but keep collecting local sales tax) during the holidays.
  • Since the first proposed tax holiday would take place in March, the immediate effect of such a plan would be to... encourage people to spend less money right now, and wait until March. Which is an odd feature in a stimulus plan.

The CTJ report is here.


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