Gov. Scott Walker has announced that he will include a sales tax holiday for 2017 in his state budget proposal to be unveiled early next year. More details are forthcoming, but the tax holiday will likely be targeted for August and exempt certain back to school purchases like clothing, computers, and various school supplies.
On its face, this would appear to be a slam dunk. Conservative orthodoxy generally supports any measure that lightens the tax burden on working families, and a holiday targeted to back to school purchases is likely to be popular. What’s not to like?
For starters, to the extent that the idea is to stimulate the economy, a sales tax holiday just won’t work.
According to the Tax Foundation, who has consistently criticized sales tax holidays as “poor tax policy,” there is no evidence that the holidays spur economic growth. Rather, studies suggest consumer purchases are simply shifted to coincide with the holiday.
Implementation comes with its own costs. Compliance is not free, and creates its own challenges for businesses of all sizes. In addition, the targeted sales tax holiday is a sort of cronyism that favors certain products, industries, and stores over others. The government effectively cuts prices for a select group of merchants.
Putting aside debates about economic benefits, isn’t providing working families a 5% discount on back to school products reason enough to support the idea?
Potentially. But if lawmakers really want to ease the burden caused by high prices for school supplies, why don’t they consider repeal of the state’s antiquated minimum markup law? The minimum markup law, the target of a new lawsuit from the Wisconsin Institute for Law & Liberty, makes below cost discounts on back to school purchases, prescription drugs, gasoline, and even Black Friday deals, illegal in the state of Wisconsin.
In a recent comparison of school supplies for sale at Wal-Mart in Wisconsin stores versus those just over the border in Illinois and Minnesota, consumers in Wisconsin were paying more for markers, crayons, notebooks, calculators, and colored pencils. A relatively simple shopping list showed Wisconsin consumers paying $12.34 more than their counterparts over the border due to the minimum markup law. Eliminating the 5% state sales tax would only result in saving $5.18.
In addition, a repeal of the minimum markup law would not affect state revenue, nor would it increase compliance costs for businesses.
A sales tax holiday will, in all likelihood, be popular among lawmakers and families. But as politicians pat themselves on the back for giving working families a break, they ought to explain why a law that makes everyday discounts, like the savings listed above, illegal. Consumers might legitimately feel that they are being offered peanuts while favored special interests – businesses who want to be free to charge higher prices – continue to feed at the government trough.
So, could a sales tax holiday be beneficial to working families? Sure. The Governor’s heart is in the right place. But on the spectrum of meaningful reforms it stands just to the right of doing nothing.