Update: July 23, 2015: In the two years since this post was written, the state has held two more sales tax holidays, with net losses in tax revenue of $22 million (2013) and $21 million (2014). We’re well on our way to losing $200 million since the first holiday 11 years ago.
Original post: July 23, 2013
Summer is at its peak. The tomatoes are ripening, tassels are appearing on the corn, and our Legislature, once again, is entertaining the idea of a “Sales Tax Holiday.” For eight of the nine past summers, the Legislature has chosen one weekend in August to suspend the state sales tax, declaring the event a once-a-year respite for the hardworking taxpayer. That hardworking taxpayer, whose car needs four new tires because of the deplorable condition of our roads, will get to pocket about $20, and our roads will remain deplorable.
In 2004, the year of our first sales tax holiday, retailers predicted that the economic growth created by the enormous volume of sales would more than make up for the loss in sales tax revenue. “Christmas in August,” they beamed. “Bring it back next year.” And so the Legislature has.
But every successive holiday (only in recessionary 2009 was it cancelled) has added doubts about its economic wisdom. To the public, the holiday is no longer an unexpected surprise, it’s a settled expectation. (Jordan’s Furniture is already announcing in television ads that this year’s holiday will be the second week in August.) And, as the Tax Foundation has documented, when buyers are able to anticipate the holiday, it does not stimulate more sales, but simply shifts the timing of sales to coincide with the holiday.
Studies by our state Department of Revenue of the most recent sales tax holidays confirm the Tax Foundation’s cautionary findings. Even accounting for (the very small amount) of increased economic activity that was generated, the net loss to the state from the 2012 holiday was $21 million. In 2011, it was $18.7 million. In 2010, it was $18 million.
Our state leaders seem to be aware that the sales tax holiday makes less and less sense as a policy matter. When Governor Patrick signed the 2011 holiday into law, he observed that, while it was popular, it was not necessarily prudent (State House News, 8/1/11). And the Senate Ways and Means Chair, while defending the program, said in a moment of understated candor that it “may not be the finest public policy on the planet” (State House News, 7/28/11).
The total losses from our eight sales tax holidays have almost certainly exceeded $100 million.* That money could pay for some repaired bridges, roads and dams, or for an investment in high quality pre-school education for more of those kids who will one day be supporting us in our retirement (may their accomplishments — and their salaries — suffice).
*In addition to the figures for 2012, 2011 and 2010 cited above, the Department of Revenue estimates that the 2008 holiday cost $13.1 million. That makes a total of $70.8 million, not including the holidays for 2007, 2006, 2005 and 2004 (which was a one-day rather than a weekend holiday).