Sales Tax Holiday Gains Backers, Raises Questions
A proposal to enact a 10-day nationwide state sales tax holiday after Thanksgiving has generated significant bipartisan interest on Capitol Hill as an innovative way to stimulate the economy.
But some experts express concern that the plan would add burdens to state budgets without helping the economy much, and even advocates concede that some difficult administrative issues still must be addressed.
The National Retail Federation, which lobbies on behalf of major retailers and trade organizations, is leading the charge for the sales tax holiday, with backing from the U.S. Chamber of Commerce, computer retailers and other trade groups. The federation enlisted Sen. Patty Murray (D-Wash.), who last week proposed it in the Senate with Sen. Olympia J. Snowe (R-Maine) and other lawmakers.
The plan would suspend all sales taxes on purchases made between Nov. 23 and Dec. 2 to give a boost to the holiday buying season. The federal government would reimburse states for the lost revenue in that 10-day period, estimated by the group at $6.5 billion, but some states have expressed concerns about whether they would be paid quickly enough and about their administrative costs.
“This represents a direct infusion into the economy,” Snowe said. She noted that consumer spending accounts for more than two-thirds of the overall economy and that consumer spending fell sharply after the Sept. 11 attacks. Snowe, a member of a centrist group trying to draft a bipartisan economic stimulus plan, said the proposal is fiscally responsible because the money would be spent only if consumers made purchases.
Lawmakers are discussing the plan with governors associations, which haven’t endorsed it and are keeping a wary eye on the proposal. One problem is how to reimburse the states. The federal government could issue checks based on historical patterns so that states got the money quickly, but that might shortchange or overpay states.
Alternatively, states would need to conduct audits and collect detailed information from retailers to receive federal funds, causing lengthy delays that might harm states already suffering budget shortfalls and burdening states with new administrative costs. Some states also have issued bonds that are backed by dedicated sales tax revenues.
“You do have a tension there in terms of the mechanics of how you structure it,” said Larry O’Brien of OB-C Group, which is pushing the sales tax holiday on behalf of Sears, Roebuck & Co.
Because states have different levels of sales taxes, some could benefit more than others from the tax holiday, raising issues of fairness. Five states have no sales tax.
Eight states have had some sort of sales tax holiday, generally on back-to-school shopping.
