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| For Release October 14, 2008 |
Contact Jon Shure 609-393-1145 |
Sales tax holidays are not a good way to address severe economic downturns. This is unlikely to deliver the benefits its proponents hope for, and could make matters worse. The state income tax and sales tax already will take a hit from the bad economy. Adding to those losses is like saying, "I'm starving so I think I'll go on a diet."
About a dozen states have sales tax holidays, but none as broad as the five-week New Jersey proposal. Usually they last for a shorter period of time and involve the tax on a specific group of items, such as school supplies.
Evidence from other states suggests that reducing or eliminating sales taxes for a specified period do not necessarily cause people to increase what they buy. Instead, they shift when they will buy.
New Jersey already does not tax such essentials as food and clothes. Big-ticket purchases - particularly cars and furniture - are as competitive as they have ever been, often with zero-interest loans to consumers for up to several years. Because of gas prices, gas-guzzling cars are selling for less.
Many people are now maxed out on their credit cards and are financing debt at exorbitant rates. Others have trouble meeting both their mortgage and utility bills. Is this really the time to be encouraging people to buy more non-essentials? Rescuing the economy isn't the job of cash-strapped households that can ill afford taking on more debt.
A temporary sales tax cut as economic stimulus is untried. While the positive impact on the economy is doubtful, the revenue loss to the state will be tangible and serious. That is money that could have been used to help people most in need, in more targeted, meaningful ways. Programs that provide health care to children, utility subsidies to families and the elderly, tuition assistance to aspiring college students and jobs through construction projects all cost money. And don't forget, with less sales tax, less money is available for property tax relief, since a penny from each purchase goes for that purpose.
Sales tax holidays paint with an overly broad brush. Those who can easily afford to pay the current tax will get the same break as those who are struggling.
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