Tax Foundation: Sales tax holidays don't benefit economy, instead shift spending

(The Center Square) – Tennessee and West Virginia are two of the 19 states that hold some version of a sales tax holiday in 2024, up one from 2023 according to The Tax Foundation.

The Washington, D.C.-based tax policy group says those tax holidays range from an outdoor recreational equipment holiday in Florida over the summer to clothing tax holidays in Iowa and Oklahoma.

Tennessee ran its back-to-school holiday on school supplies, computers and clothing the final weekend in July while West Virginia’s holiday ran through Monday. Virginia and Maryland also have upcoming back-to-school holidays .

Ohio is currently holding its annual sales tax holiday after extending it from three days to 10.

“Sales tax holidays are politically popular with elected officials because they offer direct discounts, whether real or perceived, to consumers in a highly visible way,” the Tax Foundation wrote . “Consumers often believe they’re getting a good deal. Thus, they remain popular despite their economic inefficiencies, unintended consequences, and frequent inability to achieve their stated goals.”

The group pointed out that economists who have studied tax holidays found that they do not create economic growth and instead shift spending to within the holiday timeframe.

“While some consumers make incidental ‘impulse’ purchases during these holidays, those additional purchases are not enough to justify the revenue costs associated with these holidays, even if such impulse purchases are desirable,” the group says. “Since sales tax holidays shift the timing of demand but do little to increase its magnitude, sales tax holidays reduce state and local tax collections for little or no economic benefit.”