August 3, 2023
Senior Policy Analyst
August 3, 2023
This year, 19 states will forgo a combined $1.6 billion in tax revenue on sales tax holidays—politically popular, yet ultimately ineffective gimmicks with minimal benefits and significant downsides. You’d be forgiven for thinking sales tax holidays offered substantial relief from regressive sales taxes, but really, these temporary moratoriums are costly, poorly targeted, and do little more than allow state leaders to score political points.
Take, for instance, this year’s most egregious offender: Florida. The state is estimated to lose over $1 billion in sales tax revenue after expanding these holidays this year. Not only does the state lack an income tax—hindering one of the most effective ways to tax higher incomes and wealth—but it has, over the years, chopped up its sales tax structure to offer exemptions on purchases of arbitrary items like random toys, tickets to sporting events, and boating supplies.
And if you ever needed an example of the hollowness of the sales tax holiday, look no further than Florida’s new year-long exemption for gas stoves. You may be wondering why a state where more than 90 percent of the homes have electric ranges needs this exemption on the books. Well, it’s because it doesn’t, and the proposal was nothing more than an opportunity to score political points and increase the likelihood of asthma in children, apparently.
If you want to take a deeper dive into sales tax holidays, our updated brief on sales tax holidays not only highlights the exorbitant cost to states in forgone revenue but also shows how they often fail to produce their intended results due to their many flaws:
- Tax holidays leave a regressive tax system—one that asks more of low- and moderate-income families—unchanged and do little to benefit families most in need of support.
- Sales tax holidays poorly target those who are disproportionately impacted by regressive sales taxes and wealthier families are more likely to be able to benefit.
- Retailers are given leverage during sales tax holidays and can exploit consumers with higher prices or watered-down sales promotions.