NCPA - National Center for Policy Analysis

Sales Tax Holiday, Supply Side Tax Cut

November 21, 2001

Economist Arthur Laffer says one of the best short-term economic stimulus plans is that proposed by Senators Patty Murray (D-Wash.) and Olympia Snowe (R-Maine): a national 10-day sales tax holiday. Under the proposal, state and local tax-free shopping would begin some time after Thanksgiving.

  • Laffer says there is no difference between an across-the- board sales tax holiday and an across-the-board income tax cut.
  • Like an income tax cut, a sales tax holiday increases the incentive to work and produce.
  • And thus a permanent sales tax reduction would be even better.

Nor will the states lose out, says Laffer, because more people will work, it will generate more taxes - income, payroll, profit - thus offsetting some if not all of the reimbursements.

Sales taxes on all items except food for immediate consumption, alcohol and tobacco would be eligible for the tax holiday. Five states without sales taxes wouldn't be affected: Delaware, Montana, New Hampshire, Oregon and Alaska -- although Alaska does have local sales taxes.

Source: Arthur Laffer, "Real Stimulus: A National Sales-Tax Holiday," Wall Street Journal, November 21, 2001.


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