Every day should be a tax holiday

Commentator Robert Reich

TEXT OF COMMENTARY

SCOTT JAGOW: It's that time of year when some states hold tax holidays. The idea is to give back-to-school shoppers an incentive. But commentator Robert Reich says people could be getting much less than they deserve.


ROBERT REICH: Retail sales are lagging. No surprise. Consumers are paying through their collective noses for gas, groceries and health insurance. Paychecks for all but the wealthiest are still stagnant.

Retailers are howling and politicians are listening. The latest gimmick is to proclaim holidays on state sales taxes — particular days when consumers can buy up a storm without paying the extra three, four, five or six percent sales tax that's normally added on.

Consumers say they love the tax holidays. Retailers love them because they stimulate sales. But there's no evidence the holidays stimulate more sales over the long term. Consumers just spend less other days.

Besides, there's no such thing as a free tax holiday. Revenues lost to state governments on tax holidays have to be made up some other way or else services have to be cut.

The curious thing is why states continue to tax sales at all, any day. Sales taxes are among the most regressive forms of taxation. Consumers with moderate or low incomes have to sacrifice much larger portions of their incomes on sales taxes than do wealthy consumers.

It would be fairer to abolish sales taxes altogether and have government rely more on progressive, graduated income taxes. Yet over the past 10 years, sales taxes have gone up — notwithstanding the occasional tax holiday — while other taxes at the state and federal level have become less progressive. Why?

First and most obviously, as the rich get richer they also get more politically powerful. That's why, for example, a handful of super-wealthy families are able to finance the current campaign to end the federal estate tax, which, if they're successful, will reap them a bonanza.

But it's also true, according to polls, that even low-income people would rather pay sales taxes than income taxes. Although sales taxes end up costing them more, most people feel that sales taxes are less coercive than income taxes. The psychological plus of a sales tax is you decide for yourself how much you're going to buy and, hence, how much you'll be taxed. Other forms of taxes hit you regardless of your personal choices.

And so when a tax holiday is declared and you run to the mall and spend like a drunken sailor, it feels like you're exercising the ultimate choice -- getting a great deal. Even if you can't afford it, even if your wages stink, even if the whole tax system is stacked against you.

SCOTT JAGOW: Robert Reich is former Secretary of Labor. Now he teaches public policy at the University of California at Berkeley. In Los Angeles, I'm Scott Jagow. Thanks for listening and have a great day.

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