Maryland's ho-hum holiday

Our view: This week's sales tax discount is likely to benefit few — aside from those who want to brag about it

August 09, 2010

Despite the August doldrums — economic, meteorologic and otherwise — some Maryland retailers are likely seeing a modest surge in sales this week. Maryland's sales tax holiday runs through Saturday, and if history is any indicator, back-to-school shoppers will be keeping store cashiers busier than they did last week.

But to what effect? Judging from past experience, the most lasting impact will be to reduce state tax revenue by about $9 million.

Sales tax holidays are often derided by economists as gimmicks, and Maryland's clearly fits that description. It applies only this week and only to purchases of clothing or shoes costing under $100. Accessories such as belts or headbands and sports gear (football shoulder pads, for example) are still taxed.

Consumers are not sheep. They may spend more this week — particularly if stores offer to piggyback their own discounts on top of the tax break — but that doesn't mean they'll spend more overall this month or this year. The chance to save $6 is not usually a life-altering experience.

What's troublesome about the holiday is that the chief beneficiaries are the elected officials who grant them. It's telling that this year's holiday was built into the 2007 law increasing the state sales tax from 5 percent to 6 cents on the dollar.

Thus, some can brag that they're looking out for the "little guy" in an election year. Trouble is, the "little" part applies more accurately to the tax break. Even the most extravagant shopper isn't going to pocket more than pin money.

Meanwhile, the loss of $9 million to the state budget is more tangible. It may represent a tiny fraction of spending in a budget of $32 billion, but it is from such choices that budgets are balanced.

What might that tax revenue have bought? It might have been set aside to help cover a potential $1.5 billion shortfall in next year's budget and slightly reduce the need for a possible tax increase in 2011 and beyond. Or, as Neil Bergsman of the Maryland Budget & Tax Policy Institute recently pointed out, it might have paid for college scholarships for 4,500 students or emergency housing for 1,000 families or any number of vital services to working-class Marylanders that have been cut because of the economic recession.

Don't get us wrong. We'd love to see the retail sector improve. But state government's role in such a recovery is limited at best.

The penny increase in the sales tax approved three years ago may not be popular with voters, but it was a fiscally prudent choice under the circumstances. Candidates for state office would be wise to own up to it and not hide behind such puffery as an annual back-to-school tax holiday that puts scant money in consumer pockets but could prove costly in the long term.

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