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Tax holiday

Get serious about big economic, fiscal issues

The state House has passed, and sent to the Senate, a bill that would establish a three-day sales-tax holiday for items deemed necessary for returning to school in the fall: clothes and shoes to replace those that have been outgrown, pencils, crayons, composition books, computers. If the legislation gets past the Senate and Gov. John Hickenlooper, all those things will be a little cheaper for three days next summer.

The difference will be small, because the state sales tax is 2.9 percent, and the Legislature has no authority to declare a tax holiday for other taxing entities.

Any tax break is, at least on the surface, attractive to nearly everyone who pays that tax, and parents certainly can use some extra cash, but a three-day tax holiday for a narrow range of merchandise is a half-baked idea for many reasons.

First, why should items essential for school (or just really cool) be tax exempt some of the time, but not all of the time? How is that fair? Either the exemption is sound tax policy or it is not.

If it is intended to stimulate spending, the effect surely will be minimal.

Most parents, after all, have limited budgets. If, say, each family spends $1,000 getting ready for back to school – a high estimate for the sake of creating a nice round number – their savings would be $29.

That is not nothing. For some, $29 (or whatever figure) is worth fighting their way through the crowds on those three days. Possibly, if they were spending cash or if they were good at calculating on the fly, they would contribute that additional $29 to the economy. Many, though, would go home after buying what they would have bought anyway, thereby reducing the economic boost.

According to TheDenver Post, the Washington-based Tax Foundation, which studies such things, has concluded that tax holidays shift the timing of expenditures, but not the amount.

Some shoppers shift their spending from some other three days into those, as savvy retailers attempt to capitalize on the tax holiday to grab their share of the “extra” money. (Meanwhile, even merchants who have no significant ability to benefit from the tax holiday have to deal with the complexity of charging different amounts of tax on different days for only a subset of items generally taxed alike.) Others shoppers – those wanting milk, bread and other items taxed at the same rate on those three days as on all other days, probably would avoid the crush and stay home. The net result, if positive, would not be huge; it might not even be noticeable.

If the bill’s sponsors and supporters do predict substantial savings, they should be able to explain how the costs of the holiday will be allocated.

State government, while beginning to recover from the effects of the recession, still cannot fund all its basic needs. State Rep. J. Paul Brown, R-Ignacio, has cited the backlog of unmaintained state buildings, roads and bridges. The needs of K-12 education, including infrastructure, have been widely discussed. Colorado’s college students are being priced out of higher education because of tuition increases necessitated by smaller state contributions. And the list goes on.

As a holiday, a celebration, this might be fun. As an acknowledgment of the fiscal straits in which too many Coloradans find themselves, it is valid. And, as an election-year gambit, it is not surprising.

But as a tax plan, it is at best a minute piece of a big picture, and as an issue requiring legislators’ time and attention, it is a waste of both.