Sales Tax Holiday is Well-Intentioned But Misguided

Dick Lavine, Senior Fiscal Analyst at the Center for Public Policy Priorities

Texas’ annual sales tax holiday is this weekend – August 9-11.  Retailers will not collect state or local sales tax on most clothing, footwear, and school supplies priced under $100.

The sales tax holiday is well-intentioned but misguided.

Legislators concerned about the unfair burden that the sales tax places on low- and moderate-income Texas families hope that the three-day tax break will help struggling families.  But wealthier taxpayers who can afford to make larger purchases during this one weekend receive the greatest benefit.  Local merchants, who are said to enjoy a flood of customers, in reality see mainly just a shift in sales from neighboring weekends.

The state, cities, counties, and other public entities that rely on sales tax revenue to support public services will lose an estimated $78.9 million from the weekend’s tax break.

A better approach to correcting the imbalance in Texas’ state/local tax system would be targeting aid through a rebate that could be distributed efficiently through the existing Lone Star Card program, instituting a circuit breaker program that linked property taxes to a taxpayer’s ability to pay, or establishing a state personal income tax that had higher tax rates on those who could afford to pay more.

For more information on sales tax holidays, read http://www.itep.org/pdf/salestaxholiday2013.pdf

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