Don’t believe the “holiday” hype
Sales tax provision will do more harm than good
Conservative and progressive experts don’t agree too often about tax policy. But here’s one thing they do agree on: Sales tax holidays are a bad idea. Both the Tax Foundation, a leading conservative voice on tax issues, and the Institute on Taxation and Economic Policy, a progressive think tank headed by Policy Matters Ohio’s founding executive director, pan such holidays. The Ohio General Assembly should take note and scrap the $1 billion sales tax holiday included in the Senate budget bill.
The Senate would create a period of at least two weeks in August 2024 when items costing $500 or less (except for certain products like alcohol and tobacco) would be tax-free. Even some otherwise progressive legislators might like the idea, since the sales tax is regressive: It falls more heavily on low- and moderate-income people. But by waiving the sales tax for a short time, policymakers in fact do more harm than good.
Upper-income residents can take advantage of the holiday because they have the income available to spend when it comes. But residents living paycheck to paycheck may not be able to meaningfully participate, and a significant share of whatever savings exists goes to shoppers who don’t need it.
Moreover, some of the savings may go not to consumers but to retailers who raise prices for the duration of the holiday. Such holidays also can create administrative hassles — such as planning for the upsurge in business and possible slowdowns before and after. Some research has shown that part of the increase in sales during these holidays is simply a shift from when it otherwise would have happened, so they don’t bolster the economy.
The Senate-proposed holiday would be a huge expansion of the existing three-day holiday on clothing worth less than $75 and school supplies and instructional materials under $20. It would drain public resources that would be better spent reducing Ohio’s horribly high infant mortality, improving mental health services, supporting affordable child care, boosting food aid and fully funding public schools.
Especially frustrating is the fact that legislators have better, more targeted options. For example, they could create a refundable sales tax credit, which would give Ohio residents below a certain income threshold a credit against their income taxes. Such credits exist in a number of other states, and can be allowed for state residents only. “The precise targeting of credits allows them to be much less expensive than exemptions,” ITEP noted.
Ohio’s upside-down tax system definitely needs an overhaul. But an untargeted, short-term break on the sales tax isn’t the way to do it. The conference committee should scrap the sales tax holiday and divert the $1 billion to more productive uses.