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Wednesday, October 31, 2001 - Page updated at 12:00 AM

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Prescription for economy: sales-tax holiday?

Seattle Times staff reporter

WASHINGTON — In a novel plan to spur consumer spending, Sens. Patty Murray, D-Wash., and Olympia Snowe, R-Maine, today plan to offer legislation that would create a national sales-tax holiday starting right after Thanksgiving.

Under the plan, which supporters may try to attach to an economic-stimulus package in the Senate, the U.S. would reimburse states up to $6.5 billion for forgone taxes on everything but liquor and tobacco.

The 10-day tax holiday would be Nov. 23-Dec. 2, giving consumers a reason to buy even big-ticket items such as cars at the start of the Christmas shopping season.

"Consumer confidence is everything. This gives people a reason to go out and kick-start the economy and get something out of it," said Murray. "You can buy a car, a computer or a Palm Pilot. This is my kick-the-bad-mood bill. I'm going shopping."

The District of Columbia and 45 states levy a sales tax, and the holiday idea springs from a handful that offer seasonal respites from the tax.

Many states — including Washington — would have to speed new laws through their legislatures to offer the tax holiday.

Dana Middleton, spokeswoman for Gov. Gary Locke, said the governor told Murray he would support her bill and call a special session, but only if the measure guaranteed the state be reimbursed for "actual" losses.

She said the Locke does not support the original bill, which would reimburse states based on a sales-tax-income average.

In a normal year, the state takes in about $163 million in sales taxes during a 10-day period in the fourth quarter, according to Mike Gowrylow, spokesman for the state Department of Revenue.

But Gowrylow said the state's losses "would be substantially higher" if consumers are given a break on sales taxes.

Tax-holiday supporters say the idea has gained considerable bipartisan support from senators.

Although the measure calls for new federal spending, its chances could improve if it were attached to the economic-stimulus package, which yesterday, Senate Minority Leader Trent Lott, R-Miss., said GOP senators "overwhelmingly support."

"If we can include it in the stimulus, great," Murray said. "If we can get it passed by Nov. 18th, I think we should do it. It's a patriotic way to help the country."

Lott called the idea "innovative" but said it should only be added to President Bush's stimulus package if it clearly helps workers or stimulates growth.

"If it doesn't do one of those two things, we shouldn't be doing it," Lott said.

Some economists suggest a tax holiday could create movement in an economy that's stagnated since the beginning of the year, and plunged since Sept. 11.

"It could have an impact psychologically on people going out and buying stuff, especially buying bigger things," said Nicholas Economides of New York University's Stern School of Business.

"That would make a big difference for businesses, especially ... in New York and the Northeast, and ultimately it would be good for the whole economy."

Information from The Associated Press was used in this story. John Hendren can be reached at 206-464-2772 or jhendren@seattletimes.com

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