Thirteen states and the District of Columbia now hold sales tax holidays, which allow shoppers to save money by ignoring the sales tax on selected items, usually school supplies, food, and clothing. In many states these weekend or week-long holidays are scheduled to occur during the next few weeks. Lawmakers promote the holidays as a way to help the poorest residents pay for necessary items. Any sales tax cut will benefit low-income families, for whom these taxes are most burdensome. However, sales tax holidays are very poorly targeted: they provide tax breaks to all consumers, even the most wealthy. Also, the lost revenue from sales taxes can be expensive for the state. This year, Rhode Island had to abandon a proposed sales tax holiday when the state decided it could not afford to lose the revenue.
Many sales tax holiday advocates say the increased business that the holidays encourage makes them worthwhile. However, Dr. Bruce Domazlicky, director of the Center for Economic and Business Research, disputes the idea that the holidays increase sales. "What they're probably seeing is sales being shifted in time," he says. "If they're buying the same items, except that it's all in one weekend, then there's probably very little increase, if any." For more on sales tax holidays, click here.