Maryland's Giant Six-Percent-Off Sale

Maryland’s sales-tax-free week is almost here again. I call it “MARYLAND’S GIANT SIX-PERCENT-OFF SALE.” 

 

A law passed back in 2007 established August 14-20 of this year as a “sales-tax holiday” because legislators thought that by now the recession would be over and the state could afford the revenue loss. But tough economic times have lasted longer than anyone expected, to the point where state is really giving up money it doesn’t have.

For that week, there will be no state sales tax on clothing items under $100.

If the department stores advertised 6% off all clothes, it would not be a very exciting sale. But darn it, state Comptroller Peter Franchot and other politicians sure get excited about the tax-free week.

 You can see a good report from WMAR TV-2 here.   It includes about 20 seconds of an interview with me.

Anyway, it’s my job to be the wet blanket. This “tax holiday” is fun, but it’s a costly gimmick.

The holiday is estimated to cost the state treasury about $10 million in lost revenue. That’s enough money to provide 1,000 families with emergency housing assistance, or 5200 scholarships to state colleges. And it comes after the state made big cuts to education, healthcare, and other services to close a $1.5 billion revenue hole in the current budget.

 The tax free week is supposed to help Maryland families with back-to-school season expenses, and to promote Maryland retailers.

The economic research shows that stores don’t benefit much from sales tax holidays. They affect the timing of purchasers rather than the overall amount. Business might be up during a sales tax holiday, but it goes down other times as people simply shift their purchases to the tax-free days.

One Florida study showed that retailers raised prices during the tax holiday so they got 20 cents out of every dollar customers saved on taxes.  

More importantly, the sales tax holiday provides no relief to low-income Marylanders the other 51 weeks of the year while giving an unnecessary break to a millionaire who could easily afford the $4.80 tax on an $80 dress shirt. Low-income families have to spend most or all of what they make just getting by. With less disposable income than wealthier taxpayers they aren’t as able to shift the timing of their purchases to coincide with the sales tax holiday without throwing their finances out of kilter.

A better way to help families that struggle to stay afloat would be to have a tax system in Maryland that provides the revenue needed for services like education, health care and job training that help people make their own way over the long haul. It would make more sense to reinstate the recently expired upper bracket for the highest-income households in the state, and using the money to prevent  cuts to education, health services, and job training programs.