Heritage News Forum: Tax holidays rarely work

Published 12:00 am Monday, January 28, 2002


It may have taken a war and a recession to do it, but quite a few liberal politicians are jumping on the “tax-holiday” bandwagon these days.

We’re hearing proposals for “sales-tax holidays” and “payroll tax holidays.” Given your hard-earned dollars a temporary reprieve from government’s grasp is suddenly in.

Local officials in Washington, for example, recently instituted a 10-day “sales-tax holiday” to help consumers stretch their paychecks – and perhaps motivate them to indulge in some early Christmas shopping. By waiving the 5.75 percent sales tax on clothing, footwear and accessories costing $100 or less, officials said they hoped to “provide our economy a much-needed boost.”

New York City officials are pushing for a similar, 10-day sales-tax break for all items, regardless of cost. And some federal lawmakers want to go them one better – they’re proposing a national sales-tax holiday that would take place in early 2002, perhaps in time or the traditional January “white” sales.

It doesn’t stop at the sales tax. Sen. Jean Carnahan, D-Mo., thinks Americans should enjoy a one-month break from the “payroll tax,” the portion of our paychecks that goes to Social Security. Completely halting the tax, she says, would be good for American business. “It will help our small businesses, the true engine of our economy,” she adds.

These holidays are garnering support from politicians on both sides of the aisle, and for an obvious reason: Letting people keep their own money to spend (or save) as they please is a good thing.

Which begs the question: If tax holidays provide such a shot in the economic arm, why not make every day a tax holiday?

No, I’m not talking about repealing every tax. I’m talking about makaing deep, meaningful cuts – the kind of cuts some of our liberal holiday-boosters fume about.

Conservatives have long argued that cutting taxes is a sure-fire way to help a struggling economy. And history is full of examples.

You don’t have to go back very far. In the early 1960s, for example, President Kennedy rebuffed the liberal wing of his party and instituted sweeping tax reductions, which triggered significant economic growth. Then, in the 1980s, President Reagan reversed nearly a decade of “stagflation” with a new round of tax cuts.

President Kennedy and President Reagan understood that the best way to put more money in people’s wallets is to leave it there in the first place. After all, when you can keep most of what you earn, you have more incentive to be productive and earn more. As your income grows, you spend and save more. And that fuels economic growth.

But the long-term logic of this seems to escape most liberals.

Take Sen. Patty Murray, D-Wash., She supports a “sales-tax holiday” because it would “get America’s economy back on its feet.” But if such a policy is good 10 days out of the year, why not the other 355? Don’t we want a growing economy year-round?

In the end, these tax “holidays” are gimmicks that will have no real, lasting impact on economic growth and job creation. But it’s nice to hear liberals admit what the rest of us have known all along – that higher-than-necessary taxes hurt the economy.

EDWIN FEULNER is president of The Heritage Foundation, a Washington-based public policy research institute.