Consumers are happy because they get tax-free supplies for the kids. Businesses are happy because they get to sell their wares. Politicians are happy because they have done something good for the economy that makes parents and businesses happy.
What could be wrong with that?
Plenty, according to a report by the Tax Foundation, a national think tank that studies tax policy on the state and local level (http://taxfoundation.org/).
In a recently released report, the Tax Foundation found that sales-tax holidays actually impose significant costs on businesses and consumers without producing the benefits supporters promised.
According to the report, consumer purchases are seldom stimulated by the holiday, despite what retail associations claim. Instead, buyers — not all of them parents of back-to-school children — come in and buy what they were going to buy in the first place. They do not spend significant money on items that are not sales-tax exempt, the report said.
In addition, the concentration of consumer spending during this brief period creates for businesses problems with inventory, labor allocation and tax-code complexities.
As for saving the consumer money, a 4 percent to 7 percent savings granted during the period in most of the states that have the holidays is not significant in the long run, despite isolated cases of stores raising prices to minimize the results. “If politicians want to save money for the consumer,” Joseph Henchman of the Tax Foundation said, “then they should cut the sales tax rate year-round.”
In Alabama, this would be hard to do because the sales-tax revenue supports so many state services; groups that rely on it will resist lowering the levy across the board unless that is accompanied by an increase in other areas (property taxes or income taxes — or both). However, those increases would be opposed by the groups and individuals affected by them.
It seems that Alabama is a perfect example of one of the foundation conclusions: “If a state has to offer a ‘holiday’ from its tax system, it’s a sign that there’s a problem with the system itself.”
So, add the sales-tax holiday to the evidence of why Alabama needs comprehensive tax reform. Unfortunately, the state’s leaders won’t get the message because it is not the message they want to hear.
