With the state's annual sales tax holiday for clothing and shoes set to begin Sunday, retailers are gearing up for eager shoppers hoping to save a few bucks.
But some argue the temporary tax break -- clothing and shoe purchases under $300 will be exempt through Aug. 23 -- is more gimmick than sound economic policy.
"Why it's done is politics," said Peter Gioia, an economist with the Connecticut Business and Industry Association. "It's done two months before election time. There is a weak boost from this and some shopping is delayed. The economic impact is not that great. If you want to increase spending, tax less all the time."
The state's sales tax is due to change July 2015, when a year-round exemption for clothing and shoe purchases under $50 takes effect. The one-week, $300 and under summer break will continue.
For the state, sales-tax-free week means a revenue loss of between $7 million and $8 million, according to the state Department of Revenue Services. The increase in retail sales for merchants could not be immediately obtained.
The state's 6.35 percent sales tax is the 10th highest in the nation, with California the highest at 7.5 percent.
"Having this week-long sales tax holiday not only makes back-to-school shopping just a little bit easier, but also helps retailers boost their bottom line," said Gov. Dannel P. Malloy during a visit Friday to a Berlin clothing retailer.
"Many stores also plan sales and discounts to coincide with this week, which allows families to stretch their hard-earned money a little further. This is a great opportunity to shop locally and support Connecticut retailers," Malloy said.
When Malloy took office, the state offered a year-round sales tax exemption for clothing and shoe purchases under $50 in addition to the larger late summer break. Faced with massive deficits, Malloy eliminated the year-round break in 2011.
The budget approved this year by Malloy and the General Assembly reinstates the $50 or less exemption for clothes and shoes, effective next year.
"That was one thing that went because of the deficits," Gioia said, referring to the year-round break. "Now there is spending on all sorts of programs. There is a vast amount of spending built up and it forces more taxes."
Gioia said sales tax free week mostly benefits lower income consumers, noting $200 in spending provides only $12.70 in savings.
"Merchants like it because they use it for marketing. The politicians love it," Carstensen said. "You might get a tiny bump in sales. It costs the state money to implement. There are now 689 exemptions to the sales tax. It's not working well. We ought to be having a serious discussion of the revenue base for the state."Read Full Article
DRS Commissioner Kevin Sullivan said retailers appreciate sales tax free week, pointing out it has been offered for more than a decade.
"I'm proud that we can continue this tradition, make it a little easier for families to do back-to-school shopping and offer all taxpayers a break," Sullivan said.
"The CRMA has always advocated for the sales-tax free week because of the benefits it offers both consumers and retailers throughout Connecticut," Phelan said.