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Stores like tax holidays; tax experts pan them

MONTPELIER, Vt. — Brad Borofsky hopes a sales tax holiday this weekend will draw more buyers to his outfitters shop in search of kayaks, canoes and other high-end outdoor items. After all, who wouldn't like a break on their taxes?

Yet a growing chorus of national tax experts — both on the right and left — are panning sales tax holidays as a gimmick that does little to boost the economy and hurts already-sagging state revenues more than they help consumers.

Massachusetts, Maryland and the District of Columbia have cut back on sales tax holidays or scrapped them altogether recently. In Massachusetts, which lost $14.9 million in potential sales taxes during a two-day holiday last August, a 25 percent sales tax increase went into effect this year.

Still, Vermont last year joined about 15 other states in holding sales tax holidays, which supporters like Gov. Jim Douglas and state chambers of commerce say can give consumers a break and retailers a boost in tough economic times.

And that's welcome news to Borofsky, co-owner of Sam's Outdoor Outfitters, which has stores in Brattleboro, Bellows Falls and across the Connecticut River near Keene, in sales-tax-free New Hampshire.

"Overall, it certainly will create some revenue," he said. "We'll have some people who come here from Massachusetts, and people from New Hampshire."

Connecticut on Saturday finishes a weeklong sales tax holiday, which is costing the state $3.3 million in revenue as it faces a two-year budget shortfall of $8.6 billion.

"It helps us," said Kelly Sharp, of Glastonbury, Conn., on her way into a T.J. Maxx store in an East Hartford shopping plaza. "And I know that's a selfish viewpoint, but I feel like we give the state enough money. It's nice that they're giving some back."

Sharp's husband, Mel Sharp, 32, said the tax break makes a bigger difference to the average consumer than to the state's coffers.

"Those numbers are just astronomical. It's hard to grasp that," he said of the state deficit.

A big shopping day is expected Saturday in Vermont, where its 6 percent sales tax — 7 percent in Burlington and other cities and towns that add a 1 cent local option tax — will be on hold for purchases of "tangible goods" costing less than $2,000. The break will cover everything from furniture to computers to liquor. The state already exempts clothing, footwear and food bought in stores from the tax.

Some retailers say there's a downside to the holiday: slower sales leading up to the day and sometimes afterward, as well.

"It's just a timing shift; it's not an overall increase in the purchases that are made," said Mark Robyn, a staff economist at the conservative-leaning Tax Foundation and an author of a new study on the holidays.

Frank Bouchett, co-owner of the Homeport home furnishings store in Burlington, said sales had been unusually slow this week, as customers have been coming into the shop, picking something out and then promising to return Saturday to make the purchase.

"They're bad tax policy, essentially just a political gimmick," Robyn said, adding politicians like them because "it makes it look like they're cutting taxes and helping people."

They didn't get a much better review from the liberal-leaning Center on Budget and Policy Priorities, based in Washington. That group's Jon Shure said he worried about the fiscal impacts.

"If low-income people get a two-day break on their taxes but important programs for their education or health care are cut, that doesn't turn out to be a good deal," he said.

Susan Mesner, an economist with the Vermont Tax Department, acknowledged that most of the national research on the topic indicates that sales tax holidays don't have much of a positive economic impact. But she said merchants and shoppers love them.

What explains the disconnect between the academic research and people's real-world experience?

"Numbers tell us a lot," Mesner said. "They never tell us everything."