The tax holiday, which ran over the past weekend, suspended the Commonwealth's 5% sales tax on selected non-business purchases up to $2,500. Officials estimated that the tax holiday cost the state $30 to $50 million in sales tax revenue.
BHI finds that the cost in lost revenue was far less and that the holiday provided a boost to the economy.
The institute bases its findings on its Massachusetts State Tax Analysis Modeling Program (MA-STAMP). The model incorporates a widely used methodology for simulating tax-policy changes. BHI performed its estimates after adjusting for purchases that would have been without the tax holiday.
Results from the model estimate that the sales-tax holiday produced the equivalent of between 163 and 275 full-time equivalent jobs (resulting temporary additions to staff over the weekend) and boosted production by between $63 and $106 million dollars. State disposable income was boosted by between $5 and $9 million. Because of these "dynamic" effects, the loss of combined state and local tax revenue was only $16 - $27 million.
Table 1: Summary Results: MA-STAMP - Tax HolidayThe boost stems from additional purchases by Massachusetts consumers, by tourists and by residents from bordering states. David G. Tuerck, BHI Executive Director, said that "the sales-tax holiday provides a simple lesson in economics: Consumers respond to incentives." He added, "Considering how little the holiday costs state and local treasuries and how much it adds to the economy, it is a custom worth preserving."
New Full-Time Equivalent: Jobs: 163-275 jobs
Additional Disposable Income: $5 - $9 million
Additional Production: $63 - $106 million
Lost State and Local Revenue: $16 - $27 million
