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This year, 18 states will encourage consumers to buy back-to-school items tax free. These sales tax holidays get lots of promotion and lots of press, but the reality is that sales tax holidays are no kind of deal for most taxpayers. State tax systems are known for the way they demand more from lower income families, and a three-day break barely makes a dent in that.
The reality is that sales tax holidays offer too little relief to the families that need it most. They require that you do your shopping during a brief window of time, which requires a financial flexibility that more affluent families have but those on tight budgets often don’t. On the retailers’ side, some stores have been shown to raise their prices during the tax holiday and others report it’s no net gain for them since they end up selling products they would have sold some other weekend anyway.
Sales tax holidays are political side-shows that might distract taxpayers, but they don’t solve any problems. Responsible lawmakers should instead implement fundamental reforms. For example, year-round sales tax credits that can be claimed on tax forms offer a stable, reliable and more substantial break for working families. States have multiple options (PDF) for using the tax code to genuinely help families make ends meet.
The Institute on Taxation and Economic Policy has updated its Sales Tax Holiday policy brief to coincide with the back-to-school shopping season. You can read it here.