Friday, February 25, 2011

EDITORIAL >> Tax holiday wreaks havoc

In the world of tax gimmickry, there is nothing more senseless than the tax holiday. But the Arkansas House of Representatives nevertheless passed a bill creating a sales-tax holiday for school-related merchandise.

It produces no economic benefit and, in fact, produces a single notable economic effect: It reduces the state treasury, which means less money for the schools, law enforcement and health programs. An accumulation of these tax benefits spells trouble down the line, as the state and local governments confront a fiscal crisis. Then they have to raise taxes or eliminate services.

You have to suspect that this is what all these tax gimmicks—loopholes for millionaire investors, exemptions for big manufacturers, and all the rest that are wending their way through the legislature—are all about.

Arkansas will be like Wisconsin, Indiana, Texas, Florida, New Jersey and California in a couple of years when the chickens come home to roost. The tax holiday for school stuff at least has the advantage of providing a tiny, temporary benefit to working people, which the rest do not. But it is still a politically happy, fiscally unwise thing to do.

It is a hard bill to vote against, cutting anybody’s taxes, even if only a smidgen. Only three of the 100 House members had the courage to do it.

One weekend in August people will be able to buy anything that might be related to school—clothing, accessories, school supplies, books, etc.—and state and local sales taxes would not be collected. In states that have them, many stores raise their prices just a hair in preparation for the holiday. After all, they lose a little, too, from the tax holiday because the state allows them to keep a portion of sales taxes for acting as the state’s tax collector. It’s big money to retailers like Walmart, Target and Dillard’s.

The justification for the tax holiday is that it supposedly would encourage people to turn out in droves and spend a lot of money, which would stimulate the economy and create jobs. But as the Tax Foundation, a conservative antitax group, points out, tax holidays do nothing of the sort. They only change the time when people make their purchases. The sum of the commerce is unchanged. The Tax Foundation, of course, prefers permanent tax giveaways.

The legislature may pass one significant and largely worthy tax cut. That is Gov. Beebe’s plan to lower the sales tax on groceries by another half of one percent. He hopes to eliminate the tax altogether before he leaves office. It will blast a sizable hole in the state budget, but Beebe says the state can accommodate that cut, though it will do some harm to funding for the schools and colleges.

He opposes all the other tax giveaways, whether they are for big special interests, such as manufacturers and speculators or for common folk. We’re with him.

Arkansas provides the most anemic services—roads, infrastructure, education, health services, public safety—than almost any state in the union. Every time the legislature passes one of these gimmicks, it means poorer services.