The conservative Tax Foundation and left-leaning Georgia Budget & Policy Institute aren’t always on the same side on issues, but they agree that the state should dump its annual back-to-school sales tax holiday.
The “holiday” this weekend is part of a popular tradition in Georgia and more than a dozen other states. It costs the state, and saves shoppers, tens of millions of dollars and is a political plumb for lawmakers.
But both the Washington D.C.-based Tax Foundation and the Georgia Budget & Policy group say it’s terrible tax policy, does little or nothing to spur the economy and often provides minimal benefit to shoppers.
The Tax Foundation put out a report earlier this week saying there is no evidence the event promotes economic growth. It instead shifts when people who were already going to buy make their purchases.
In addition, it says, “Some retailers raise prices during the holiday, reducing consumer savings.”
The report said most sales tax holidays around the country “involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating among products and across time, and distorting consumer decisions.”
Examples? While it’s sold as a back-to-school tax break, weightlifting belts, corsets, garters, lingerie and roller blades are included among the untaxed items. Baby receiving blankets are untaxed, but crib blankets are taxed. Diapers are untaxed, but diaper bags are taxed.
The Tax Foundation, like the Georgia group, argue that sales taxes are regressive, meaning they impact the poor and middle-income more than the rich. Cutting sales taxes could provide some relief. But it said, “In order to give a small amount of tax savings to those with lower incomes, holidays give a large amount of savings to higher-income groups as well.”
Probably most importantly for the Tax Foundation, it said that “political gimmicks like sales tax holidays” distract lawmakers from making more meaningful, permanent changes to the tax system.
“The bottom line is the benefits of sales tax holidays don’t outweigh the costs,” said Wesley Tharpe, research director of the Georgia Budget & Policy Group. “Consumers and small businesses see a meager gain around the margins, at best.
“But the event drains more than $70 million in state and local tax revenue,” he added. “That’s a sizable chunk of change when communities are struggling to fully fund their public schools or keep their local hospital from closing.”
Businesses that back the holidays don’t see it that way. Nathan Humphrey, state director of the National Federation of Independent Business, said the sales tax holiday could provide a much-needed lift to many small stores and businesses.
“It’s been a lackluster summer for a lot of small businesses,” he said. “The sales-tax holiday should help people get fired up and in the mood to spend.”
Parents would go back-to-school shopping regardless, he said, but the tax holiday could also attract cash-strapped shoppers who have delayed buying new clothes and devices.
“And people need to remember that the tax holiday applies to Main Street as well as the mall,” Humphrey said. “Even if you don’t need school clothes, you can save money shopping during the sales-tax holiday.
“When you shop at small, locally-owned businesses, you’re helping your friends and neighbors. You’re supporting the businesses that support our schools and charities and create jobs in our communities.
In Georgia, the tax holiday was started in the early 2000s. It was discontinued briefly when the state was feeling the crushing financial weight of the Great Recession and couldn’t afford it, but it’s been back ever since.
The Georgia Budget & Policy Institute put out a report last year saying that it’s too expensive for a state that still includes “austerity cuts” in school funding budgets, that it provides minimal savings to consumers and that it doesn’t really boost the economy since parents are going to buy back-to-school items whether they get a break on sales taxes or not.
The institute argues that it costs the state treasury around $40 million a year and local governments another $30 million.
Like the Tax Foundation, the Georgia group said there is evidence that some retailers pocket extra money by pumping up prices, eating into any savings shoppers receive.
Some lawmakers echo the findings of the Tax Foundation and Georgia Budget & Policy Institute.
A couple of weeks ago, for instance, Rep. Brett Harrell, R-Snellville, re-tweeted a story on the holiday and wrote, “An example of poor tax policy we ought to discontinue.”
But legislative leaders annually tell colleagues that it gives them the chance to go home and tell constituents they are doing something to help them save a little money.
Gov. Nathan Deal promoted the sales tax holiday in a release Thursday.
“The back-to-school tax-free holiday allows Georgia’s families and students to save money on crucial school items, clothing and technology during a time of year when household expenses add up quickly,” said Deal. “I commend the General Assembly for working with me to reduce taxpayer burdens in order to make our state a better place to work and raise a family, and it is my hope that parents and students will use this weekend to prepare for a successful school year.”
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