Sales Tax Holiday: Golden Case Study Opportunity

By Kenneth Hunter, Guest Blogger

You may have seen a movie made a few years ago about a small town Mayoral election give reference to how two different people would solve the citizen complain of blinding headlights shining through their bedroom window. Long before that, one of my graduate professors pulled out that specific public policy case study during our first class to show how important it was to focus policy analysis and development on solving problems, not treating symptoms.

The lights-and-window example is still relevant, but perhaps a more relevant and personable case study now presents itself. This weekend, North Carolina will be one of many states (18 in total this year) that will offer sales tax holidays for dozens of “qualifying” purchases. Most of these happen to deal with supplies for incoming students of all ages, as evident by the targeted tones of advertising circulars for department stores, office suppliers, and discount warehouses.

More than likely, higher education faculty will find that their own students and families have taken advantage of the opportunity to save a few cents, or dollars, off their final bill. Not to mention, stores are offering significant discounts on select items (some necessities, but more wants and desires) to get customers in the door.

With the memories of great bargains and feeling of accomplishment that only comes from “getting yours” of the tax-man still bubbling in their minds, it might be a nice time to look at the implications of this prevalent, political element of our ever-growing tax policy debate.

For instance, most everyone serious about the need to reform our tax structure, whether their views lean right or left on the standpoint of solutions, agrees in principle that sales tax holidays are effective only from a political perspective. The economic effects of the savings available to citizens for spending or investing are minimal and time-limited.

Generally speaking, research from both sides finds that sales tax holidays shift consumer activity from one place in time (and/or geography) to another (see here and here for examples). Citizens receive very little personal benefit from participating, and governments are faced with loss of revenue that generates minimal, sustainable impact on the economy.

Sales tax holidays are, at least in my view, great modern-day examples of using an appealing political concept, effective at generating visible press and producing some short-term joy in the eyes of consumers, to treat symptoms of a tax system that is an historic, multi-layered mosaic of inequities with respect to incidence, administration, justification, and effectiveness. While the politicians may have offset some dissatisfaction with their constituents, they have also built one more barrier in the process of solving the serious problems that are growing ever faster in their degree of consequence.

For students entering the study of public administration for the purposes of acquiring knowledge or preparing for their career, the draw and fallacy of the sales tax holiday provides an outstanding case study to learn how their focus need not be on visible remedies, but less-amusing cures that will likely leave many personally dissatisfied, but will help restore needed fiscal discipline and solvency.

ASPA Member Kenneth Hunter is an MPA Graduate of The University of Georgia with more than a decade of experience in local government finance. Kenneth is the Budget & Evaluation Manager for the City of Rocky Mount, North Carolina, and serves on the Executive Committee of the Association for Budgeting & Financial Management and is a Board Member and Webmaster for the North Carolina Local Government Budget Association.

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