The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

We’re in the heart of sales tax holiday season now.  Despite cooler heads prevailing in DC and Georgia, where sales tax holidays have been scrapped due to gloomy budget projections, Massachusetts and North Carolina have recently decided to move ahead with their holidays, and Illinois has decided to join the party for the first time.

By now, you may be familiar with all the reasons why sales tax holidays are a bad idea (read this ITEP policy brief if you’re not).  Aside from those groups with a vested interest in the holidays (e.g. retailers looking for free advertising, politicians looking to build their anti-tax credentials, and confused parents thinking these things actually save them money), just about everyone seems to agree that sales tax holidays are a worthless political gimmick.  Stateline pointed out last week that analysts as varied as those at Citizens for Tax Justice and the Tax Foundation have come to an agreement on this point.

But as long as sales tax holidays remain popular enough to remain impervious to most state budget crises, we might as well take a moment to marvel at some of their more glaring absurdities.  For example, this year, Massachusetts’ sales tax holiday will apply to alcohol.  College students in the state clearly have quite an effective lobbying presence in Boston.  Interestingly, neither tobacco nor meals will be included in the holiday.

In Illinois, which doesn’t have any experience with sales tax holidays, one columnist speculates that his wife isn’t alone in erroneously believing that the back-to-school holiday applies only to children’s clothes.  Indeed, adult clothes are included as well; as are aprons and athletic supporters.  Work gloves, however, will still be subject to tax.  You’d think that the Illinois Department of Revenue already has enough on its plate without having to worry about such minutia.

Finally, in South Carolina, it looks like the state’s Tax Realignment Commission is going to recommend quite a few changes to the state’s tax holidays.  For starters, the state’s bizarre post-Thanksgiving tax holiday on guns has to go, according to the Commission.  And changes could be in store for the August holiday as well.  The State reports that if the Commission gets its way, “this could be the last year to get your wedding gown, baby clothes, pocketbooks and adult diapers at a discount on back-to-school tax-free weekend.”  Interestingly, the South Carolina representative who first introduced the sales tax holiday idea actually agrees, claiming that he wanted only the holiday to apply to stereotypical “back to school” purchases – that is, things other than wedding gowns and adult diapers.

Despite continued fiscal woes that have forced states to cut billions of dollars in spending on education, health care, transportation, and public safety, North Carolina and Missouri became the latest states to pass expensive tax breaks in the hopes of luring, or retaining, business. 

Unfortunately, there is no evidence that these unaffordable tax breaks will lead to economic recovery and job creation.  The University of North Carolina’s Center for Competitive Economies recently surveyed companies to determine the importance and effectiveness of economic development incentives on their location decisions. Availability of a skilled workforce, quality infrastructure, and presence of community colleges and universities ranked much higher than special tax breaks (13th on the list).  Time and time again, research has shown that the most effective growth strategy for states is investing in education and public infrastructure, not special tax breaks for corporations.

During the final hours of North Carolina’s legislative session last week, state lawmakers passed a pair of bills that extended, expanded and created new incentives for specified industries and companies at a cost of more than $275 million over the next 5 years.  The most costly change was an expansion of the state’s refundable film production tax credit which raised the maximum amount of the credit that can be taken from $7.5 million to $20 million.  New credits were created for video game developers and businesses who locate in eco-friendly industrial parks.  Lawmakers also extended a tax credit program known as Article 3J that legislative staff and University of North Carolina researchers have found to be ineffective at job creation, and as recently as this spring they recommended it should be eliminated altogether.
 
The second bill was developed with specific corporations in mind (although they were not named in the legislation and have still not been publicly disclosed). Commerce officials say these corporations are considering North Carolina as a finalist for their new facilities and incentives were needed to “clinch the deal”.  The legislation grants special sales tax exemptions on electricity and machinery to two data centers, a turbine manufacturing facility, and a paper mill.  Recent news reports suggest such “struggling” corporations as Microsoft (working under the code name “Project Deacon”) and Fidelity are likely to be the parties to benefit from the special rules for the new data centers. 

Proponents of the tax breaks suggested they were needed for North Carolina to remain competitive and to spur economic recovery and job creation.  Yet, no industry listed in the second package will be required to meet a targeted employment level.  

Earlier this week in a special session called by Governor Nixon, Missouri lawmakers passed a $150 million incentives package for Ford Motor Company and its suppliers.  Without the incentives, lawmakers claimed Ford would close its assembly plant in Claycomo and 4,000 jobs would be lost.  But, there’s no guarantee that Ford will stay even with the special treatment and attention it received from Missouri lawmakers.  The special tax break was paid for by cutting pensions for newly hired state employees.

North Carolina’s state Senate has gone to bat for big business by voting to eliminate an important incentive for companies to pay their fair share of corporate income taxes.

North Carolina remains in the minority of states that levy corporate income taxes but do not require corporations to file a combined tax return for all of their affiliates, a requirement called "combined reporting" by policymakers. The lack of combined reporting leaves the state vulnerable to various income shifting strategies used by large, multi-state corporations.  However, since 1941, North Carolina’s Department of Revenue (DOR) has had the authority to (at its discretion) force affiliated corporations to file combined returns.  In recent years, due to major court decisions affirming this authority and engaged leaders at the DOR, they have used this power aggressively, and successfully, to seek out corporate tax dodgers and hold them accountable for the true tax they owe.  

Last year alone, DOR’s ramped up corporate tax compliance efforts brought in more than $400 million ($150 million was budgeted) and the governor, Senate, and House’s FY10-11 budget proposals are counting on DOR to bring in another $110 million this year.

But the North Carolina Senate’s budget proposal also strips DOR of another tool that has allowed for their success, the 25 percent “large tax deficiency” penalty.  The penalty works like this: If the new tax liability determined from combining returns is more than 25% of the original tax paid, corporations may have to pay a penalty equal to 25% of the difference on top of the new tax they owe. 

North Carolina’s Revenue Secretary, Ken Lay, says that without this penalty, multi-state corporations would continue to engage in tax avoidance strategies, playing the “audit lottery” and taking a chance on hiding their income.  The DOR uses the penalty to incentivize companies that owe back taxes to settle quickly and, as a reward for doing the right thing, DOR will waive the penalty. 

They need this “stick” because without it their compliance efforts will fail to produce meaningful results and certainly will not yield the $110 million budgeted for collecting unpaid taxes.
 
Whether or not to strip this authority is at the center of North Carolina’s final budget negotiations between the Senate and House.  The provision was not included in the House’s budget proposal.

Sen. Dan Clodfelter, a Democrat and chair of the Senate’s finance committee, is leading the charge against DOR.  He thinks removing the penalty is “only fair” because businesses should not be punished for not anticipating a DOR audit that would result in different tax liability from a combined versus separate entity reporting practice. Other proponents claim that those forced to pay the penalty were “well-intentioned” and “had no way of knowing the department would disagree with its tax return years later.”
 
Secretary Lay disagrees and says that DOR focuses on pursuing cases in which businesses are believed to be intentionally hiding income through complex tax avoidance schemes commonly used by large, multi-state corporations. When DOR determines a corporation did not purposefully abuse its separate entity filing status to hide income, the penalty is waived.
 
With few exceptions, big corporations are fully aware when they're dodging their tax responsibility.  They frequently hire large accounting firms who tout tax avoidance schemes and promise them substantial tax savings. And in two recent high-profile court cases in North Carolina against Wal-Mart and Food Lion, the evidence was clear that the two companies restructured their operations with the intention to reduce their taxes in the state and elsewhere.  

Even North Carolina’s major newspapers have joined this debate on what would seem to be an unusually technical issue.  Sen. Clodfelter’s hometown paper called the Senate’s proposal to “ease corporate taxes” a” bad idea” and the Raleigh News and Observer suggested big businesses’ campaign contributions may be behind the Senate’s efforts to eliminate “tax enforcement policies that are both fair and rigorous.”

As the North Carolina Budget and Tax Center recommends, the obvious solution to address Sen. Clodfelter’s concerns would be to enact mandatory combined reporting.  Mandatory combined reporting would not only prevent tax-dodging and level the playing field between large, multi-state corporations and smaller, in-state businesses, but it would also offer clear guidance on the correct way to report income and business activity that occurred in North Carolina.

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

Dell’s decision to close its Winston-Salem North Carolina factory provides one of the most visible examples to date of the failure of state and local tax subsidies as a tool of economic growth.  The subsidy given to Dell to open this factory was valued at over $300 million, and was described by Good Jobs First's Greg LeRoy as one of the highest ratios of subsidy – to – private investment ever received.  Be sure to read this blog post from Good Jobs First for some insights on this important story.  This closure is sure to have a significant impact on the nationwide debate over economic development subsidies.

States policymakers across the country are looking to the future and anticipating another year of tough budget decisions about whether to cut services or increase taxes. Two recent pieces from research groups in Georgia and North Carolina make excellent points about the importance of considering tax increases and their impact on economic development.
 
Last week, the Macon Telegraph published an editorial by Alan Essig, Executive Director of the Georgia Budget and Policy Institute. Essig notes that there "is more to economic development policy than having the lowest tax rate. Economic development depends on, at the least, adequate public structures; without them, it is difficult to recruit and grow businesses in Georgia, no matter how low taxes are." Racing to the bottom in terms of tax rates is hardly the best economic development decision a state can make.
 
North Carolina legislators did take a balanced approach to filling their state's budget shortfall by passing both tax increases and budget cuts. Yet, this hasn't stopped anti-taxers from crying "job killing taxes." The North Carolina Budget and Policy Center recently released a report debunking the myth that state tax increases cause job losses. Read the Center's report, Wishful Thinking: Claims That State Tax Increases Cause Job Loss are Unfounded.

Governor Bev Perdue signed the budget passed by North Carolina's legislature last week. The compromise budget raises nearly $1 billion in needed revenue (about 23% of the state's budget shortfall for the fiscal year). While we can't describe all the revenue raisers as pleasingly progressive (the sales tax and various excise taxes were increased), legislators did opt for a progressive income tax surcharge targeted to upper income taxpayers instead of an across the board surcharge.

The North Carolina Budget and Tax Center identifies the silver lining of the budget agreement. First, new revenue was raised, and second, there is new momentum for comprehensive tax reform.

Read more about BTC's take on the compromise here.

A broad base is an essential element of a good tax system. Fulfilling the principles of "horizontal equity," and "economic neutrality," both depend upon the use of a broad tax base. Unfortunately, the temptation to carve out special tax breaks for politically popular causes, or for powerful constituencies, if often irresistible to lawmakers.

But efforts are currently underway in Michigan to undo some of these special tax breaks, and a tax reform commission in California is at least pretending to consider a reform that would help pave the way for a careful reconsideration of many of that state's tax breaks. Furthermore, policymakers in North Carolina have expressed a strong desire to return to the task of base-broadening this fall, even as efforts to include base-broadening revenue-raisers in this year's budget agreement seem to have failed.

Earlier this month, Michigan Governor Jennifer Granholm stated her desire to eliminate between $500 million and $1 billion in special tax breaks as a way to reduce the state's looming deficit. While accomplishing such a feat will inevitably involve an uphill political battle, Michiganders should be grateful that the Michigan League for Human Services (MLHS) is closely following the action. MLHS Chairman Lynn Jondahl hit the nail on the head when he urged lawmakers to ask themselves, in reference to the state's film tax credit, "Would you be willing to appropriate $6 million to MGM, say, to make this film in Michigan? We're paying you to do something in lieu of filling pot holes or funding mental health treatment. Which do we value more?"

In California, a tax reform commission that so far has shown interest mostly in cutting the progressive income tax is at least listening politely to a different idea. The so-called "blue proposal" currently before the commission, presented as a less regressive alternative to the much-ballyhooed flat-tax proposal supported by Governor Schwarzenegger, would require special tax breaks to be presented in the Governor's budget, saddled with a "sunset" provision, and evaluated based on their effectiveness in achieving their stated objectives. Of course, adopting this approach will amount to rearranging deck chairs on the Titanic if the commission acts on its apparent zeal for moving away from income taxes and towards regressive consumption taxes. And the "blue proposal" has its warts as well: provisions that would impose a spending cap and create a new "net receipts" tax in lieu of the current corporate income tax have progressives feeling, well, blue. But the tax-expenditure element of the "blue proposal" is a welcome dose of thoughtful policy at a time when California surely needs it.

Finally, in a recent development out of North Carolina, base-broadening appears to be off the agenda for the immediate future, though policymakers have expressed a strong interest in returning to the issue this fall. When they do return to the issue, they would be wise to review these recommendations, recently released from the North Carolina Budget and Tax Center, explaining how to broaden the state's tax base while simultaneously offsetting any potentially harmful effects on low- and moderate-income families.

Last week, we told you about North Carolina Governor Beverly Perdue becoming more realistic about the need for tax increases to balance her state's projected $4.5 billion shortfall. Earlier this year the state's Senate Finance Committee released their Tax Modernization and Simplification Plan that includes broadening the state's sales tax base, moving toward an adjusted gross income base for purposes of calculating state income taxes, and lowering the state's income tax rates. (For a complete analysis of the Senate proposal see this informative brief from the North Carolina Budget and Tax Center.)

Now there's more good news. This week the House Finance Committee passed their own proposal which included increasing sales and income taxes, and also broadening the sales tax base to include services. No doubt, North Carolina lawmakers are making difficult decisions about budget priorities, but having tax increases on the table makes their jobs much easier.

A new brief from the North Carolina Budget and Tax Center makes a strong case for increasing taxes to solve the state's budget crisis. The report rightly argues that economic times are so bad, resulting in such low revenue projections across the country, that policymakers aren't left with any other option but increasing taxes. In fact, the report finds that, "No state with a projected gap as large as North Carolina is attempting to balance its budget with spending cuts alone."

Apparently, Governor Beverly Perdue is coming around to this thinking too, saying that tax increases may be necessary to close the state's projected $4.5 billion shortfall which is equivalent to 20% of the state's budget. The outcome of the state's budget debate remains to be seen. But with Senate leaders and now apparently the Governor interested in raising taxes, perhaps it's not too much of a leap to predict that North Carolina will join with other states that have raised taxes to address dire shortfalls.

North Carolina Governor Beverly Perdue has presented a $21 billion budget proposal that would cut spending across the board and relies on regressive revenue-raisers to plug the state's budget shortfall. Governor Perdue is also proposing to cut spending by $1.3 billion in each of the next two years. On Tuesday she said, "The budget I'm releasing today, I believe, makes strategic investments that will create jobs and increase overall per-student spending, and is a balanced budget." But it's clear that the Governor is missing a real opportunity to be forward-thinking. She could have chosen to improve the state's tax structure through sales tax base expansion and increased progressivity of the income tax, which would offset the regressive effects of her proposed increases in the state's cigarette and alcohol taxes. Let's hope that the Governor's budget isn't the last word on how to fix the state's budget shortfall.

In recent weeks, North Carolina Governor Mike Easley signed into law the state's 2009 budget. Totaling around $21.3 billion, the legislation is supposed to respond to the current economic climate, but falls short.

Lawmakers had earlier proposed two new tax cuts, one regressive and one progressive. The regressive cut was a repeal of the state's gift tax. North Carolina is one of the last remaining states with a gift tax and, as CTJ has previously pointed out, the tax is absolutely necessary to ensure that the estate tax is collected. If a state does not tax large gifts, wealthy residents can avoid the state's estate tax by giving their assets to their children before they die.

The progressive cut proposed earlier was an increase in the state's earned income tax credit (EITC). The credit, which will increase from 3.5% to 5% of the federal EITC, will provide relief for the working poor.

Neither progressive advocates nor anti-tax advocates got everything they wanted in the budget deal that was approved. Both tax cuts were delayed until 2010. That means that wealthy North Carolinians will be able to avoid the estate tax if they wait until 2010 and then give their assets to their children. It also means that the needed help provided by a boost in the EITC will not yet be available at a time when prices are rising and increasingly burdening low-income North Carolinians.

The fact that these tax cuts were delayed is a result of the General Assembly's desire to balance the budget. But as CTJ has noted, even a 5% state EITC in North Carolina is not enough. In order to offset the burden of state and local taxes for a family of four, the EITC must be set at no less than 11% of the federal EITC. Next year, lawmakers should reject cuts in the gift tax that will result in reduced estate tax collections and instead focus on the needs of the working poor.

As we mentioned last week, this is the season for fiscally irresponsible sales tax holidays to purportedly give relief to working people on their back-to-school shopping. Sales tax holidays are a bad idea for the states' budgets and tax-payers alike. Low-income families probably cannot time their purchases to take advantage of a sales tax holiday, and it can be an administrative headache for retailers and government. Sales tax holidays are also poorly targeted to low-income individuals compared to other policy solutions such as low-income tax credits.

Now another group of states is ready to forgo needed tax revenue in exchange for a few dollars off the purchase price of various goods. These states include Alabama, Iowa, Missouri, North Carolina, Tennessee, and Virginia among others with holidays scheduled Friday through Sunday.

Meanwhile, a Birmingham News editorial points out that the sales tax holiday is a "gimmick" that has allowed state lawmakers to divert attention from their outrageously regressive tax code. Alabama is one of only two states that doesn't exempt or provide a low-income credit for its sales tax on groceries. If that were done, Alabama consumers would save far more money than they do on a three-day sales tax holiday (an average family of four would save about seven times as much). But instead of exempting groceries from sales taxes or raising the state's second-lowest in the nation income tax threshold, lawmakers pretend to help low-income Alabamians with a few tax-free shopping days a year.

Georgia's sales tax holiday began on Thursday and exempts articles of clothing costing less than $100, personal computers cheaper than $1500, and school supplies under $20. This week, the Atlanta Journal-Constitution mentioned some of the more amusing exemptions covered by that state's sales tax holiday. These exemptions include corsets, bow ties and bowling shoes. As the author noted, guys headed to their first day back in school "might combine the bow ties and bowling shoes, then just head straight for the restroom to collect their free swirlie." The article also mentions ski suits, highly unlikely to be big sellers in Georgia, and adult diapers, seemingly unrelated to the average family's back-to-school needs. Georgia lawmakers may want to revise their list of exemptions to concentrate on discounting necessities, or better yet, end this farce once and for all.