Does A Free Tax Weekend Provide An Economic Bump?

Every year, with the purpose of creating a mini economic boom, many state governments offer a free tax weekend in which many items can be bought with little to no sales tax. The purpose of this as an incentive for consumers to spend and build the economy is a noble one, but does it really work? Here are some of the pros and cons to the tax exempt weekend.

Advantages

The biggest and most obvious advantage is the chance for the consumer to save money. The key to keeping this as an advantage though is to refrain from buying unneeded goods just because they are cheaper for the time being. This does have the potential to stimulate growth in the economy, as families can better afford to stock up on regular items while dishing out big bucks for things deemed necessary but otherwise too expensive with taxes (such as large appliances).

Businesses, however, see the greatest earnings, as they are still earning every bit as much per product as before, while enjoying increased demand. Theoretically, this increase in revenue would allow them to either keep their prices more affordable through the year, or put money into making higher quality products.

Disadvantages

Unfortunately, if one person is making more money, then that means somebody else is making less. In this case, state governments miss out on valuable tax dollars. One practice that helps to offset this is that many businesses will hold big sales in the weeks building up to a tax free weekend, but this may not be enough to make up the difference.

Also, on the consumer end, it is all too tempting to blow too much of their budget on things not needed just because they are suddenly cheaper, leaving people without proper savings and causing a decrease in their standard of living. Additionally, any money spent on a tax free weekend is more money not spent when taxes are back to being implemented, meaning that the state government will continue to lose tax dollars even after the tax free weekend is over. If a state suffers to great a loss in their income, it may force them to make painful budget cuts that could hurt the economy, or raise taxes to make up the difference.

You’ve seen the advantages and disadvantages of having a tax free week, now it is up to you to decide whether it really causes the economic bump that the nation is looking for.