Controversial state sales tax holidays in full swing
August is the most popular month for the tax holidays, but they don't come without controversy. This year, in particular, criticism is reaching a crescendo with complaints that the holidays have become ineffective at what supporters once claimed they were: a win-win for consumers and states. Instead, critics say, the breaks are misleading "gimmicks" that have outlived their usefulness.
Other tax holidays are coming in September, when consumers in Georgia can buy energy products tax-free, and in Louisiana, where firearms and hunting supplies will be exempt. Starting next February, the cycle begins again with exemptions for hurricane preparedness supplies in Alabama.
In all, 17 U.S. states this year have some form of a sales tax holiday, mostly in August, up from 15 last year and down from a peak of 19 states in 2010. The trend began with just Michigan and Ohio in 1980.
“States support these things for a variety of reasons, but most importantly, it sounds like a good thing – who doesn’t want a holiday from sales taxes?” Jackson Brainerd, a policy associate at the nonpartisan National Conference of State Legislatures, told AMI Newswire. “But there’s a pretty overwhelming, bipartisan consensus that they don’t accomplish what they advertise.”
The holidays are most popular with politicians and consumer and retailer groups, who say the breaks also benefit retailers with increased traffic.
In Ohio, for example, this month will see the second-ever back-to-school sales tax holiday; the Ohio Council of Retail Merchants had pushed for it for a decade.
A council spokeswoman told the Youngstown Vindicator this month that the holiday is a success. “Ohioans love a sale, and we certainly know they really love not having to pay sales tax,” said director of governmental affairs and public relations Lora Miller. “We believe it will be even better [this year] because more people will be aware.”
Miller appears to be backed up by a study at the University of Cincinnati, where economists studied the results of the state’s first back-to-school tax holiday last year. The study found consumers saved $3.3 million in just three days – while overall retail sales jumped 6.48 percent. At the same time, however, this year’s holiday in Ohio is projected to cost the state $22 million in lost revenue.
Treacy Morgan, media relations manager for the National Retail Federation, called tax holidays "a triple win."
"Retailers win because they sell more, consumers win because they save money and politicians win because they’ve given their constituents a tax break that ultimately didn’t cost the treasury a cent," she told AMI Newswire.
On the other hand, a pair of recent reports blistered the argument of tax holiday proponents, and echoed the prevailing view among economists that the holidays simply shift the timing of consumers’ purchases and entangle retailers in endless complexities regarding compliance, among other flaws.
The nonpartisan Council of State Governments (CSG) has said the holidays are “often nothing more than ineffective fiscal gimmicks,” and the nonpartisan, Washington D.C.-based Tax Foundation likewise called them “no part of sound tax policy.”
“Sales tax holidays have enjoyed political success but, recently, policymakers are re-evaluating them,” said the foundation’s July 22 report. “Rather than providing a valuable tax cut or a boost to the economy, sales tax holidays impose serious costs on consumers and businesses without providing offsetting benefits.”
Jennifer Burnett, CSG’s director of fiscal and economic policy, said the council has no official position on the tax holidays but that the idea behind them will continue to collect scrutiny.
“This is particularly true for sales tax holidays, which can result in millions of dollars in lost revenue that must be made up through spending cuts or tax increases later down the road,” she said in a statement to AMI Newswire.