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Thursday, July 22, 2010

Sales Tax Holidays - more on this tax "oddity"

In my list of "tax oddities" I include sales tax holidays (particularly ones for gun purchases). There is an article in today's Baltimore Sun on the costs to the state and low-income taxpayers of their holiday which lasts for one week. The tagline of the article - "It drains state coffers of needed revenues while providing little benefit to consumers" says it all ("The hidden costs of 'tax-free' week" by Neil Bergsman, 7/22/10).

Maryland's 1-week sales tax holiday allows consumers to avoid the 6% sales tax on clothes costing under $100. While consumers save a total of $9 million, that represents a loss of revenue to the state. The holiday is for everyone regardless of how well they can afford to pay the sales tax. Thus, it is a poorly targeted tax relief measure.

As the author notes, the lost $9 million is money not available to fund programs that help low-income taxpayers. He also correctly notes that the holiday makes it more difficult to address the state's budget shortfall, it is complex, and it offers no relief to low-income consumers the other 51 weeks of the year.

This is an odd way to design a tax system!

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