States' Tax Holidays Are Irresponsible, Critics Say Nearly a dozen states will hold sales tax holidays this weekend, suspending taxes on back-to-school supplies, from notebooks and pens to new clothes and shoes. The holidays are popular with retailers, many of whom see a boost in sales without giving up any revenue. But many policy analysts say the tax holidays are ineffective and actually decrease state revenues.
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States' Tax Holidays Are Irresponsible, Critics Say

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States' Tax Holidays Are Irresponsible, Critics Say

States' Tax Holidays Are Irresponsible, Critics Say

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MELISSA BLOCK, Host:

NPR's Carolyn Beeler reports.

CAROLYN BEELER: Jared Lowry(ph) is a manager at Pacer's Running Shoes store in Arlington, Virginia.

JARED LOWRY: And we'll definitely display some on our windows here.

BEELER: Lowry is pointing out where he's going to hang signs for this weekend's tax holiday. Starting Friday, Virginia will suspend sales tax on school supplies and shoes and clothing that costs a hundred dollars or less.

LOWRY: As far as in the store, we'll probably put a sign like right when you walk in here. As you can see...

BEELER: Last year, the store saw about a 20 percent boost in sales during the tax-free weekend.

LOWRY: We think it's a good thing. On certainly a big purchase item, it will make a big difference and it can even help bring in new customers to our store.

BEELER: Shopper Gabriella Montel(ph) likes the idea of a tax break.

GABRIELLA MONTEL: I didn't know about the sales tax holiday. But now that I do, I might go shopping with my kids.

BEELER: She's planning on picking up clothes for her daughter, who's in kindergarten.

MONTEL: I think it's great. It's always nice to save money. And of course money is tighter 'cause of the recession.

BEELER: Consumers like the tax break so they're an easy win for politicians, to. At a law signing ceremony last month, Illinois Governor Pat Quinn was enthusiastic about his state's first sales tax holiday.

PAT QUINN: It's designed to get our consumers in Illinois back into the marketplace, back into shopping, back into having confidence in our economy.

BEELER: Illinois is facing a $13 billion budget deficit and Governor Quinn has faced criticism for signing a law that could worsen that deficit. But the governor says he's hoping the tax holiday will actually increase state revenue.

QUINN: We have great hopes that this will produce a revenue surplus, because when people come into the marketplace to buy school supplies, they may find other items that are non-exempt that they want to buy.

BEELER: Nicholas Johnson is with the Center on Budget and Policy Priorities, a research group that focuses on how fiscal policy affects low and middle income Americans.

NICHOLAS JOHNSON: What the evidence shows is that sales tax holidays cause people to shift their spending, not to increase it. So there's no increase in retail sales consumption.

BEELER: Johnson says there's a decrease in state revenues. And for many states, that's a loss they can't afford right now.

JOHNSON: States are facing the biggest budget shortfalls in history, and this is an additional cost to them. They're a gimmick that costs states funds that they otherwise could be using for education, for health care, for transportation and for the other core services.

BEELER: Carolyn Beeler, NPR News, Washington.

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