A modest savings

Thursday, August 9, 2007

The annual Iowa sales tax holiday on clothing and footwear, as occurred on Friday and Saturday across the state, is a good thing to have.

August is a particularly appropriate time for the event, since it is a time for purchasing back-to-school clothing.

The savings on qualified items are modest, an elimination of the seven percent tax, a combination of five percent state sales tax, one percent local option tax for school districts and one percent for towns and the county.

Since the savings are modest, the losses of tax revenues by the state and local entities are also modest.

Excessive claims about the economic benefits of the tax holiday should be regarded with skepticism. Some claim that the increase in total shopping created by the tax holiday generates enough tax revenue from purchase of non-exempt items to offset the loss from the exemption of specified items.

However, this assumes that people would not otherwise buy those non-exempt items on another date.

There might be a slight increase in shopping from out-of-state people in border towns during the tax holiday, but we have to assume that most of the shopping increase simply results from people taking advantage of bargains for items that they would have purchased anyway within a few weeks either way of the tax holiday.

Anyway, despite the fact that the savings are modest and the economic boost to businesses is mostly illusory, the event is a nice gesture by the state on behalf of citizens.