Another year with more unfortunate sales tax holidays in Florida

Another year with more unfortunate sales tax holidays in Florida in the offing

Bottom Line: Anytime I tee up sales tax holidays critically,the initial response by many listeners is surprise. Me? The fiscal conservative who’s not in favor of sales tax holidays? What’s wrong with you? I’ll address those thoughts but first here’s what likely to pass in the state session for the upcoming year. One sales tax holiday for schoolish supplies and one hurricane supplyish tax holiday. On the surface this might sound great. A day without taxes on some things that you might need anyway?Cool! On the other hand, here’s why it’s a really poor way to provide tax relief. 

The average household carries credit card debt of $6,929 at an average interest rate of 16%. That means that for the average household any additional expenditures cost the average person 16% per year to buy (the opportunity cost of buying stuff rather than using money to pay off debt). The issue with sales tax holidays is that it influences buying decisions. Simply put, people buy more stuff and spend more than they otherwise would because of the perceived savings of not having to pay sales tax. 

In reality, many people, are accumulating debt that they’re paying 16% on annually to save 6% in tax. You don’t need me to know that’s poor ROI. I’ll never forget having these conversations when I was 15/16 with young families loading up on their JC Penny credit card to buy up all of the sales while they lasted. In fact, one woman who took a particular interest in what I was saying, had me illustrate how much her stuff would cost if she continued to make the minimum payments on her card monthly. This was nearly a quarter of a century ago, so the exact number doesn’t stick but it was around 400% of the retail – non-sales price (the interest rate on the card was close to 30%). Some deal, right? 

So, here’s what Florida should do. Reduce the nominal sales tax rate on those items year –round so there’s benefit for buyers whenever they do decide to purchase that doesn’t lead to one-time large purchases,that the average household pays increased interest on for the foreseeable... 

 

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