Inside the Capitol

Saturday, August 07, 2010

8-11 Who Did Tax Holiday Really Help?

Syndicated Columnist
SANTA FE -- Who did last weekend's back-to-school sales tax holiday really help? We know it helped shoppers to the tune of seven to eight cents on the dollar that they saved on sales tax on school-related items.
Merchants said they were happy with it too. They said people could afford to buy more items because of the tax money they were saving. Gov. Richardson called it a win-win situation.
But, as always, there is a cloud on the horizon. In January, state lawmakers will be taking a close look at all the tax breaks the state offers. That includes exemptions, deductions, credits, rebates, loopholes and tax holidays in order to balance their budget. .
The back-to-school sales tax holiday is about the only tax break that benefits real people. Most of the breaks benefit corporations and the wealthy that have the lobbyists to assure their tax breaks stay put. So we little guys could lose out.
Sixteen states currently have back-to-school tax holidays and all are taking a hard look at whether they should continue. Georgia has canceled its tax holiday for this year.
In a well-researched article, the New Mexico presents the results of some think tank studies of the 16 states with a tax holiday.
The conclusion of these think tanks, which rang from conservative to liberal, is that they don't work. They are an expensive and ineffective gimmick according to several think tanks.
These think tanks contend that consumers simply buy the same items on different days to avoid taxes. They are a costly item for state government and a headache for business and government.
But Albuquerque merchants who were interviewed contended sales were up and didn't complain about having to separate the items that qualify for not being taxed.
The liberal Citizens for Tax Justice disputes the claim that tax holidays benefit working-class and poor families because very low-income people usually don't have the flexibility to shift their spending to take advantage of the holiday. It concludes that money saved by eliminating the tax holiday could go to state programs for the poor.
Pew Charitable Trusts contends that retailers sometimes hike prices during the tax holidays. But we don't hear those kind of charges in New Mexico. In fact, two years ago, Gov. Richardson tried to get the three tax holidays extended to seven days.
A possibility exists that some families may travel from neighboring states to take advantage of tax holidays, especially if they were planning a vacation or a visit to grandma anyway. Texas is the only neighboring state with a similar tax holiday but their provisions don't seem to be as generous as New Mexico's.
The yearly loss to state and local governments is around $5 million. Cities and counties absorb about 40 percent of that loss so they might lobby for discontinuance of the holiday.
It appears very likely that a legislative interim committee will want to look at the holidays this fall along with all the other myriad tax exemptions.
Many other exemptions certainly take much more than $5 million out of state revenue but it is definitely within the range of other cuts lawmakers are considering. The holidays' popularity with the public may argue for keeping it around.
Just as we may be getting some shoppers from neighboring states that don't have a sales tax holiday or don't have a generous a holiday, we need to look at what other states offer in terms of other exemptions we may want to cut.
Any one of them could take us from a competitive position to a non-competitive one and negatively affect our economy.
Both of our gubernatorial candidates have pledged to take a look at tax breaks. So we know it will be a hot topic. The problem is, however, that tax policy is a terrifically complicated subject that can activate the law of unintended consequences very quickly.
WED, 8-11-10

JAY MILLER, 3 La Tusa, Santa Fe, NM 87505
(ph) 982-2723, (fax) 984-0982, (e-mail)



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