Bacon's Rebellion

One Good Idea from the House, and One Really Bad One

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by

James A. Bacon
in

The Virginia House of Delegates leadership has just announced its support for two changes to the tax code: (1) a repeal of the death tax, and (2) a back-to-school tax holiday for school-related purchases.

I won’t dwell on repealing the death tax, which has been debated to death already. For the record, I totally support the repeal, and I applaud the House for taking up this cause.

Now, let’s turn our attention to the Back-to-School Tax Holiday. The House leadership notes that a number of states — including North Carolina, West Virginia and Washington, D.C., with Maryland to kick in next year — provide a tax-free shopping holiday shortly before the opening of school. “The ‘holidays’ are popular with consumers, educators, and businesses,” notes the prepared statement released this afternoon, “as they spur purchases of necessary educational supplies and clothing at an overall savings to consumers.”

Well, as mama used to tell me, just because someone else is jumping off the bridge, does that mean you should, too? A bad idea is a bad idea, even if adopted by Tarheels and Mountaineers. Virginia’s tax code is riddled with far too many loopholes already. Back in 2003, the Warner administration estimated that tax loopholes drained $600 million a year from the treasury, which it blamed on Virginia’s revenue shortfall at the time. (See the list.) Warner dropped the idea of eliminating the loopholes in favor of his “tax restructuring” plan, but that doesn’t mean we should continue boring holes in our tax base. We should be aiming for a simpler, flatter tax code, not a more complex one that favors legislators’ pet constituencies.

On a barf-bag scale of one to five (with five representing maximum pukiness), this rates at least a four.

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  1. Steve Haner Avatar
    Steve Haner

    I’ve enjoyed the North Carolina tax holiday when it coincided with our beach trip, and none of the items I purchased were ever worn to a school. Education, schmeducation. Who we kidding? I also remember getting regular calls at the Va. Chamber office and being asked when the Virginia tax holiday period was, and having to report we didn’t do that here.

    The last time this was proposed in the General Assembly it foundered because of divisions in the retail community. Of course, half the sales tax revenue ends up with local schools, and 20 percent of it ends up in the Transportation Trust Fund, and you can expect those interests to demand that the General Assembly hold them harmless somehow. But if that is done the political attraction is pretty strong, Jim. I’d be curious to know how the numbers compare if you have this broad but short term tax holiday, or if you completely eliminate the tax on clothing (which many states do not tax at all)or give clothing the lower 2.5 percent rate we now offer on groceries.

  2. Jackson Avatar
    Jackson

    If memory serves me, Illinois eliminated sales taxes on magazines, books and newspapers with the argument that they served an educational purpose.

    While it was a nice deal, the 8% tax rate on all other purchases was a bit steep, especially for someone coming from a 4.5% (at the time) rate in Virginia.

    Just another lesson that the money’s gotta come from somewhere.

  3. Anonymous Avatar
    Anonymous

    If you run the numbers based on Delegate McDougle’s proposal from last year, it come to just under $11 million. I believe it was mentioned at the press conference that they would hold the portion dedicated to the TTP and localities for education harmless. I think this is a great idea that benefits Virginia businesses by drawing consumers in and catching their impulse buys. Especially if you are a border retail store- the last time MD held theirs, Tyson’s shops saw a double digit decrease in sales that weekend. Hardly something to barf at.

  4. Ray Hyde Avatar
    Ray Hyde

    “Especially if you are a border retail store- the last time MD held theirs, Tyson’s shops saw a double digit decrease in sales that weekend. Hardly something to barf at.”

    I’ve been blogging the idea that instead of spouting warm and fuzy but meaningless ideology this blog could do a lot by focusing on metrics. Instead of promoting party politics or issue idology we could debate in terms of verifiable numbers, or at least debate where the numbers are right or wrong untill we come to some agreement.

    Here is a case where the Laffer curve could be easily tested. Lets set up competing qaurterly sales tax reduction days across our multiple borders. By analyzing the kind of numbers quoted above we should be able, in a few years, to zero in on the tax rate that maximises revenues and does the least damage to vendors.

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