For Immediate Release: August 1, 2012
Sales Tax Holidays No Substitute for Tax Reform
Year Round Tax Breaks for the Rich Dwarf Annual Tax Holidays for Consumers
Washington, DC – Eighteen states will host sales tax holiday weekends in August this year at a cost somewhere north of $200 million. They are billed as offering relief to ordinary taxpayers, yet 11 of these 18 states also offer one or more special tax breaks for their most affluent residents which add up to an annual cost of more than $3 billion. Moreover, only one of these states (OK) provides a year-round sales tax credit for low income families to purchase necessities (a proven poverty-fighting tool).
“Year-round, state tax codes are notoriously hard on families near the bottom of the income ladder,” said Matthew Gardner, Executive Director of the Institute on Taxation and Economic Policy, “and a three-day holiday once a year doesn’t change that. The real beneficiaries of the sales tax holidays are the politicians who get to act like they care about working families but don’t do any of the political heavy lifting real tax reform requires.”
Alabama offers a deduction for federal income taxes paid, at a cost of $516 million.
Arkansas offers a capital gains tax break that costs $53 million annually.
Florida offers a tax break on a particular kind of business income used by wealthy individuals that costs the state $1 billion a year..
Georgia allows a deduction for state personal income tax paid at a cost of $400 million a year.
Iowa offers the deduction for federal income tax paid at a cost of $642 Million.
Louisiana offers the federal personal income tax deduction at a cost to its treasury of $643 million a year.
Missouri allows the federal income tax deduction at a cost of $394 million.
New Mexico allows taxpayers a break on capital gains income at a cost of $48 million;
Oklahoma offers a deduction for state income tax paid at a cost of $100 million a year.
South Carolina allows a tax break on capital gains income which costs $115 million a year.
Tennessee’s estate tax repeal will cost $94 million a year in 2016 (after full phase in).
Even the other seven states that don’t have a gratuitous tax break for their wealthiest residents have overall tax systems that are regressive because they demand a much larger share from lower income households. “Governors who are serious about giving a break to working families in their states have sensible options for reforming their tax systems,” said Gardner. “None of them would break the bank but any of them, from the Earned Income Tax Credit to targeted sales tax credits, would make all the difference in a household budget.”
The number of states offering sales tax holidays is declining, and for good reasons. They are expensive and complicated to run for state revenue departments and for retailers. They exclude citizens who may need tax relief but have no back-to-school needs, such as seniors. They exclude consumers who lack the cash flow flexibility to time their shopping to a precise weekend. They also exclude retailers who sell products not on the somewhat arbitrary lists states devise. (E.G., New Mexico exempts prom dresses but not hair barrettes. Maryland exempts bridal veils but not tuxedos during its holiday, etc.) ITEP’s two-page policy brief on sales tax holidays is at http://www.itep.org/pdf/pb17hol.pdf.
Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy. ITEP’s full body of research is available at www.itepnet.org.