Louisiana’s annual sales tax holidays—along with those of the 15 other states planning on hosting them this year—are called “political gimmicks” in a new report from the Tax Foundation, which says the events are “politically expedient, but poor tax policy.”
“Sales tax holidays do not promote economic growth or significantly increase consumer purchases,” reads the report. “The evidence—including a new 2017 study by Federal Reserve researchers—shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.”
Louisiana hosts three tax holidays each year, during which qualifying purchases do not include the state 4% tax. Local sales taxes can also be exempted by municipalities during the events, which are held in advance of hurricane season, the start of school and the fall hunting season.
Noting that Georgia recently dropped its annual sales tax holiday and Massachusetts lawmakers have blocked a proposal to implement one, the Tax Foundation says such events do not promote economic growth, arbitrarily promote some products over others and cause unnecessary complexity and instability. They can also mislead consumers about savings.
“Large retailers are often the biggest supporters of the sales tax holidays,” the report says. “Given that they are the beneficiaries of free marketing for what is essentially a modest 4 to 7 percent discount, and that the mad customer rush in a short time allows them to raise prices, this is not surprising.”
Sales tax holidays were first introduced by states in 1980. The report says New York sparked the modern trend with the first sales tax holiday for clothing in 1997. Louisiana has been hosting them since 2005, the report says.
“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a ‘holiday’ from its tax system, it is an implicit recognition that the state’s system is uncompetitive,” the report says. “If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.”
Read the full report.