, Salem, MA

August 16, 2011

My View: Tax holiday good for business, consumers

Jon B. Hurst

For the seventh time in the past eight years, people across Massachusetts enjoyed a weekend of tax-free shopping. This past Saturday and Sunday, stores and malls were packed with consumers enjoying a 6.25 percent savings on items up to $2,500.

Starting with the first "sales tax holiday" held in 2004, shoppers have embraced this late-summer event, giving the state's economy a much needed economic boost at a slow time.

While virtually all of our elected leaders agree that the sales tax holiday is good politics, some question whether it is good policy.

Here's why it is:

It keeps Massachusetts dollars in Massachusetts.

The past seven sales tax holidays have been responsible for weekends cumulatively generating sales of $3.5 billion in Massachusetts. With tax-free New Hampshire to the north and the Internet at their fingertips, many consumers continue to spend their money outside the commonwealth. Most of the dollars spent during these tax-free weekends wouldn't have otherwise occurred locally, but gone elsewhere.

It benefits low-income earners.

Gov. Deval Patrick has properly observed that the sales tax is "inherently regressive" and disproportionately hits low-income families.

Those on the lower end of the economic ladder can't access tax-free shopping like middle- and upper-income families do. Driving to New Hampshire or shopping online isn't possible for many because they don't have a car, Internet access or the credit cards necessary to make online purchases.

The sales tax holiday helps make our tax laws a bit less regressive for families during the challenging back-to-school shopping season.

It's revenue-neutral.

Sales that occur in Massachusetts during the tax-free weekend fall into two basic categories: Sales that are recovered from other tax-free options and impulse buys. In either case there's no tax loss because the sales weren't going to happen locally anyway.

The reality is that the state sees significant tax gains because most stores double their staffing on the holiday weekend generating millions in personal income taxes on top of new corporate taxes. In addition, taxes are collected on sales for items priced above $2,500 as well as on items sold in days leading up to the weekend when stores often grant discounts equal to the tax. Finally, there are gains from meals taxes, gas taxes and increased tourism traffic.

It encourages consumer spending.

The consumer represents 70 percent of our economy, and consumer spending has a multiplier effect that determines whether new jobs and investment will be made by a wide variety of employer sectors. Getting people into the stores benefits not only retailers but all the businesses and workers that make up the retail supplier network.

It helps small businesses.

The state and federal tax codes are full of permanent tax breaks and subsidies for big corporations. Retailers are primarily family-owned small businesses that occupy storefronts on our main streets, sponsor our Little League teams, etc. The sales tax holiday is the only tax break they and their customers are likely to get this year.

The sales tax holiday is a proven economic stimulus. Our leaders on Beacon Hill are to be commended for understanding its importance.

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Jon B. Hurst of Beverly is president of the Retailers Association of Massachusetts.