Photo: M GlasgowThe 13-year-old grandson and his 11-year-old sister are discussing the Texas tax holiday—for one weekend in August there will be no sales tax on school-related items. The grandson says stores will cut prices to compete for customers. The granddaughter, already an inveterate shopper, says no: With the tax holiday there will be so many customers that the stores will be able raise prices.
While prices won’t rise compared to the previous weekend, the granddaughter seems to understand that an inelastic demand means the incidence of (gain from) the tax cut will be on the sellers—the customers are unlikely to get much of a bargain. A subtle, Texas-style subsidy to business; but one that even an 11-year-old can see through!
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$8.25 saved for every $100 spent… Of course the stores are getting the benefit in this situation, at least comparatively. Shoppers are better off going to work that day than wasting the extra amount of time expended by shopping with the huddled masses in overly crowded stores. Maybe should be analyzed on a time value of money approach… Then we’d see who the real losers are.
Not at all. I live in Texas and there are massive and very real sales during tax holiday weekend. Commodity retail is an ultracompetitive segment, and shoppers wait for this weekend, thus crimping these same retailers’ cash flow in the weeks preceding. No retailer would even think of raising prices.
Why do customers flock to what is technically a 8.25% off sale? I don’t get interested until I hear 20% off sale. Amazing that people go for this “special”.
Based on this and previous posts, it appears that you don’t like Texas very much. Why don’t you move?
Oh, wait. Tenure at UT.
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Connecticut did this for years on clothing purchased just before school started. The result was the state lost several million $ a year in revenue. The sales tax holiday merely moved the date of the transaction from one week to another.
Every year the newspapers would have pictures of people buying their children expensive clothes or hundred dollar sneakers and saying how wonderful it was they didn’t have to pay the tax.
The taxpayers who subsidized such purchases were not as enthused.
Ugh, this is the same misuse of “subsidy” that the Professor averred. Did the taxpayers provide cash to help people buy their children clothes and sneakers? Lost revenue to the state does not a subsidy make.
How is a tax holiday a “subsidy to business?” Is Texas providing some sort of financial or monetary assistance directly to stores and/or their customers on that weekend? No? Then the tax holiday is nothing more and nothing less than a transitory tax reprieve, but it is certainly not a subsidy. The state is not putting money into anyone’s pocket; it’s simply not taking out the money that it otherwise would.
FWIW, here in Virginia, there are a lot of sales on eligible items during the sales tax holiday on school supplies and clothing the first weekend of August. My vote is with the grandson.
How about Black Friday? Lots of shoppers. Lots of sales. Extended hours.
Your economics is probably correct, but the question is whether we should look at refraining from stealing from businesses as a “subsidy.”
I hope you enjoy the car subsidy I’m giving you, Daniel, by not stealing your car this week.