Sales Tax Holidays: Political Smoke and Mirrors

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Fourteen states and the District of Columbia now hold sales tax holidays, eleven of which start this weekend. These weekend holidays allow shoppers to save money by ignoring the sales tax on selected items, usually school supplies, food, and clothing. Many lawmakers proudly promote the holidays as a way to help the poorest residents pay for necessary items. However, voters shouldn't be fooled into thinking that the holiday amounts to substantial tax reform.

Sales taxes are among the most regressive taxes levied by state governments, impacting the poor, who spend most of their income, much more heavily than the rich. The wealthy are able to save their money and spend a much smaller percent of their earnings. Any sales tax cut, then, will benefit low-income families the most. However, there is reason to believe sales tax holidays aren't effective. Many lower-income families live paycheck-to-paycheck, and may not be able to put off purchases to take advantage of the tax break. More wealthy individuals can more easily schedule their spending in order to benefit from the tax break. Additionally, we don't know whether or not stores will offer the same sale prices they would normally offer. Why would stores offer a ten percent discount if customers are coming in to save five to eight percent?

This weekend's tax holidays offers only the most fleeting relief. When the weekend is over, sales taxes will continue to push low-income families further into poverty. If policymakers want to aid low-income families, they would do better to scale back sales taxes permanently. These holidays is little more than political smoke and mirrors. For more on this topic, check out this policy brief. Not everyone is fooled by the sales tax holiday gimmick. Check out this article from USA Today.

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