What NC’s Tax Free Weekend Can Teach Us

Tax-free weekend is fast approaching! If you’re in dire need of pencils, the weekend of August 3-5 holds much promise for you. Fear not, though, more than pencils will be free from our state and local sales tax, which ranges from 6.75 to 7.25 percent depending on the county in which you reside. Clothing, computers, and even some sports equipment will be exempt, among other selective items pertaining to “back to school” needs.

The media always seems to be excited when North Carolina’s weekend without a sales tax comes around. Story after story encourages parents and consumers in general to take advantage of the wondrous event. And, don’t get me wrong; it is a good event. I’ll probably be out there with everyone else, buying pencils for my final semester of college.

This coming tax-free weekend got me thinking, though. What underlying economic reality emerges during the blissful weekend? People become rather excited about the notion of purchasing goods in the marketplace while not being coerced by the government to pay a pesky sales tax. That is a cause for some excitement. It seems that, in today’s era of big government, every activity (even some inactivity, sadly) is liable to be taxed. While most of us realize that the government’s taxing power is a legitimate function, that legitimate function has been used to the max, taking away too much of our money with increased frequency and intensity. With that in mind, there should be no confusion as to why people become excited about a tax-free weekend.

But, perhaps we can take away an even larger, more significant truth from our state’s tax-free weekend. What does the event imply about the relationship between consumer participation in the economy and taxes? It seems to suggest that people are incentivized to enter the marketplace and spend their money when the tax burden (even a seemingly small burden of 6.75 percent) is removed. Imagine that! People will typically spend more money while engaging in economic activity when they know they will not be taxed. Politicians should take note.

People really don’t like taxes. And when those taxes are nullified, even for a weekend, consumers respond, spurning greater economic participation and, if stretched over the long run, economic growth.

Our great nation and state remain mired in difficult economic times. Perhaps our elected officials should consider the reaction of consumers during a tax-free weekend to find solutions to our economic malaise. Taxes have the tendency to discourage economic activity, whereas reducing or eliminating taxes have the power to do just the opposite.

So, when you are out buying pencils for your young scholar or scholars during this coming tax-free weekend, think about the incentives and disincentives taxes (or, lack thereof) have on economic growth and prosperity.

NOTE: The original post only mentioned the state-imposed segment of the sales tax of 4.75, however the sales tax holiday applies to both the state and local sales taxes.