Tax Free Weekend: The Dastardly Political Deed

It’s August and it’s nearly back to school.  Parents shall soon be free of their little gremlins.  Free of babysitting or summer camp costs associated with the summer and free of Timmy and Suzy complaining of being bored.  Free, free, freeeee!  As parents wait with giddy anticipation for the start of school, many states around the country are also sharing goodwill through tax-free weekends (or week as the case may be).

These tax free weekends are intended to drive sales for retailers.  The money that would ordinarily be paid to taxes is, in theory, then spent on other purchases.  What actually happens is far short of that.  I despise tax holidays.  I despise them primarily because they don’t provide economic benefit.  However, they’ve also become useful political tools for a paltry 6-7% discount.  It’s like the bureaucracy is expanding to meet the needs of the expanding bureaucracy.

Tax Free Weekend 101

If you live in Florida, then you may want to know what our political overlords have given us.   For the 2016 tax free weekend, school supplies that are under $15 will be tax free.  Also, if junior needs a new wardrobe, clothing items that are less than $60 are also tax free.  Our holiday this year goes from August 5th to August 7th.

That’s really all there is to know about it this year.  The Florida Department of Revenue flyer encapsulated all of the relevant material into two pages – and the first page of that includes a HUGE header and slightly smaller title.

The Gripe with the Holiday

The Spectre of a Tax Free Weekend

The Spectre of a Tax Free Weekend

To reiterate…I hate tax holidays.  So let’s talk about some quick numbers before I get into the weeds.  Florida has a 6% sales tax.  Many counties institute a .5% or 1% surtax on top of that.  That means you’re saving somewhere between 6-7% per item.  The Orlando Sentinel reports that the average family is expected to spend $673 this year on supplies and clothing.  Thus, this tax holiday is saving you between $40-47.  I personally find that $673 to be a tad bit high though, making those savings a tad high as well.  You’ll probably save enough money in taxes to buy pizzas that night.  However, you would have bought those pizzas anyway because you just went school shopping with your kid(s) and are ready to strangle them – let alone cook dinner for them.  So, you didn’t actually save any money now did you?

All the tax free weekend does is delay purchases a family would have made anyway.  Your kid needs school supplies and you anticipated the purchase all year.  You just chose to buy them all in one weekend, as opposed to stretching the purchases over a month.  That, however, brings me to my next point.  These holidays don’t really help the poor people they’re designed to aid!  You’ve now goaded someone with poor cash flow to spend on supplies with money from one paycheck, as opposed to stretching it over multiple paychecks.  This could very well mean their child is under prepared for school because they simply didn’t have the cash reserves to buy what was needed.  Behavior economics tells us they likely won’t go back and purchase the other materials as well.  To put it frankly, tax free weekends benefit the rich more than the poor.

My other main gripe with the tax free weekend is that it is unnecessary government intervention into the marketplace.  These holidays have become lobbying points for corporations.  To give a ‘for instance’, here are a few items that are tax exempt: receiving blankets, tuxedos, and lingerie.  How many kids do you know that use receiving blankets or lingerie for school?  I don’t know of any.  I’m willing to give tuxedos a bit of a pass because there might be some dapper dude doing his best Monopoly Man impression.  These sort of irrelevant exemptions provide artificial winners and losers in the market.  It’s pointless.  Furthermore, to institute these holidays, retailers must provide more staff on hand for the increased sales and adapt their inventory software to correctly calculate the taxable revenue.  These procedures aren’t free and are thusly a source of waste.

The Takeaway

The state of Florida stands to lose $20 million in tax revenues due to this three-day tax free weekend.  $20 million that is now unable to be spent on social services or housing stipends that would more directly (and efficiently) affect a low income household.

It just seems such a waste to have these holidays.  They provide no actual economic benefit, but rather just stall consumption from one-time period to another.  Taxes are primarily to serve two purposes: raise revenue for the state and to affect consumer behavior for the public good (like a sin tax on liquor or tobacco).  This holiday does neither of those tasks.  It reduces the revenue for the state because it’s a tax break, and does not promote a beneficial behavior in the public; the same goods would have been bought in the same quantity, with or without the holiday.

While I am against these tax free weekends, and openly advocate for their demise, you may as well take part.  After all, even though the savings are fairly paltry, I can’t in good faith advocate leaving money on the table.  So go on!  Get your free pizza, courtesy of the state.  Just do so knowing that the holidays don’t serve their purported goal.

 

Readers, do you agree with my view on the tax free weekends and holidays across the country?  If you’re interested in a more permanent and realistic way to save money, read how I cut my phone bill in half.  Also be sure to like Cash Flow Celt on Facebook to get all the newest updates!

Cash Flow Celt

I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.

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