Indeed. But we must cut the corresponding spending too.
“(S)ales tax experts and economists widely agree that there is little evidence of increased economic activity as a result of sales tax holidays,” according to a research report released last year by the Tax Foundation, which is currently touring Wisconsin along with the Badger Institute to gather insights from Wisconsin citizens concerned about the state’s tax code.
Applying that rationale here means that Wisconsin would be better off reducing permanently its high marginal income tax rates for all taxpayers, rather than dishing out small, one-time — and, therefore, relatively inconsequential — tax breaks to a limited group.
To be sure, beneficiaries of the child tax rebate and sales tax holiday won’t turn up their noses up at the short-term savings. But once the savings are gone, they’re gone, and the lasting value to the beneficiaries or the Wisconsin economy will be negligible at best.
If tax rates were already low (or nonexistent, as they are in nine income-tax-free states), targeted breaks might have some appeal. But that is clearly not the case in Wisconsin, whose individual income tax rates rank high in comparison to most of the rest of the country.
One hopes that these short-term tax breaks do not divert attention from the need for broader-based rate reductions. That’s where the focus should be. It is good policy and, as Gov. Walker says, “Good policy is always good politics.”