Sales tax holidays offer shopping bargains

"They're political Brownie points," says Dubay. "They can say, 'We're doing something,' which is seen as better than doing nothing."

But many tax analysts argue that if lawmakers were interested in creating sound tax policies, doing nothing would be preferable. The Tax Foundation says sound tax policy should promote a stable tax code over time; tax holidays create an unstable tax code from year to year, as the holidays come and go based on how full a state's coffer is.

The holidays also create unstable tax policy in the same year, forcing consumers and particularly businesses to deal with two sets of operational rules in the same year.

Government guidance vs. market forces

Neither should governments try to inspire consumers to purchase some item over another, says Dubay, but that's the whole point of a sales tax holiday.

"It's not the government's place to say that a consumer should buy pens, pencils and backpacks as opposed to any other basket of goods," he says. "Those decisions should be made based on the preferences of consumers and market considerations. Buy the goods when it's best for you to buy them, not when there's a gimmicky sales tax holiday."

Rather than have no sales tax for one fifty-second of a year, Dubay says lawmakers should look at lowering the rate a bit for all 365 days.

Such admonitions, however, fall on deaf ears of shoppers looking for any penny they can save and lawmakers looking to engender voter goodwill.

Trying tax times

In many locales, sales tax holidays are an expected and eagerly anticipated harbinger of the end of summer. But in today's economic climate, temporary tax-free shopping may be a vanishing trend.

A few years ago, even states facing tough fiscal times were hesitant to totally do away with the constituent-pleasing temporary tax breaks. Connecticut and Washington, D.C., at one time canceled their holidays, only to bring them back.

Now, however, many state treasuries have headed deep into deficit territory. And although tax holidays provide political advantage and temporary tax savings, a growing number of lawmakers are loathe to give up more revenue, even for a few days a year.

Still, the lure of the tax holiday and the public goodwill it engenders is strong. Maryland is biting the budget bullet now, but it plans to bring back it's annual sales tax holiday in 2010.

Does your state offer a sales tax holiday? See "2009 sales tax holiday schedule" for a state-by-state look at dates and items exempt in the back-to-school tax holidays.


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