Snowe supports sales tax holiday 10-day suspension could aid economy

WASHINGTON – A 10-day moratorium on state sales taxes may be just what the doctor ordered to help kick-start the lagging economy and refuel consumer confidence, according to Sen. Olympia Snowe.

The Maine Republican unveiled such a proposal along with Sen. Patty Murray, D-Wash., at a Capitol Hill press conference Wednesday. The two said their tax holiday would begin on Nov. 23, the day after Thanksgiving, and last through Dec. 2, and that it should be included in the massive $70 billion economic stimulus package now speeding its way through Congress.

Those 45 states and the District of Columbia which levy a state sales tax would be allowed, if they so chose, to suspend the tax for those 10 days. Under the proposal, the federal government would reimburse the states for the revenue loss up to as much as $6.5 billion total. A preliminary payment would be paid immediately to states based on past tax collections.

The proposed moratorium would come in time for the Christmas shopping season, said Snowe, a member of the Senate Finance Committee.

“Our proposal will provide a positive stimulus at a critical time when consumers need help most,” said Snowe. “Holiday sales make up about one-fifth of annual consumer spending, so we target our bill directly toward those sales.”

The proposal raises numerous questions, including how long it would take state legislatures to approve the holiday, how the federal government would deal the myriad different rates, and what would be done for states without a sales tax.

Mike Allen, Maine’s director of economic research, greeted the proposal with skepticism, saying that the tax loss might be “difficult to figure out” in a relatively short period of time. “I’m not sure how quickly most states can implement something like that,” he said.

Allen also worries about the 10-day moratorium bridging two different months, which could add another obstacle to computing lost tax revenues. “Most states do their accounting on a month-to-month basis,” he explained.

But Snowe and Murray contend that the administrative hurdles would be well worth the effort, since their plan could be implemented quickly and with little impact on the federal budget or long-term interest rates – provisions which many economists have been urging be part of any stimulus package. The proposal also offers the advantage of giving an immediate boost to low-income families at the checkout counter rather than making them wait for some future tax cut that would take months to process.

“Families get a break when they need it most,” Murray said. “Even before September 11th, this was shaping up to be a difficult time for retail businesses and the thousands of workers they employ. This sales tax holiday will give our economy a shot in the arm.”

Retail sales witnessed the biggest drop in 10 years during the month of September, according to figures compiled by the Department of Commerce, while consumer confidence around the nation has been falling rapidly since the Sept. 11 attacks on the World Trade Center and Pentagon.

Already slumping for the last four months, the consumer confidence index declined 11.5 points in October, down from 97.0 in September to 85.5, according to The Conference Board. That is the lowest reading since February 1994.

“The economic outlook is becoming increasingly pessimistic, with consumer sentiment continuing to fall,” said Lynn Franco, research director for The Conference Board’s Consumer Research Center. “Widespread layoffs and rising unemployment do not signal a rebound in confidence anytime soon. With the holiday season quickly approaching, there is little positive stimuli on the horizon.”

Helping to bolster their push for a tax moratorium, supporters point to seven states around the country, as well as the District of Columbia, which previously have sponsored tax-free holidays.

“They have been wildly successful,” said Kevin Bishop, spokesman for Rep. Lindsay Graham, R-S.C., a key sponsor of companion legislation in the House.

Results on a weeklong moratorium in Maryland this summer have yet to be compiled, but preliminary research shows the retailers were very pleased by the increased sales, according to state comptroller spokesman Mike Golden. “Our impression is that it was a major success and stores were swamped with shoppers,” he said.