Tax Free Weekend: Popular But Not Prudent

Louisiana’s sales tax holiday, scheduled to occur on the first Friday and Saturday in August, is one of the most generous in the nation. According to a policy brief by the Institute on Taxation and Economic Policy (ITEP), a non-partisan research organization, sales tax holidays put a strain on states’ budgets, and are too temporary to significantly change the regressive nature of a state’s tax structure. The exemption is projected to cost $3.7 million this year.

“A sales tax holiday is ill-timed and irresponsible at a time when our leaders are making significant cuts to critical services,” said Edward Ashworth, Director of Louisiana Budget Project (LBP). “This is just one more giveaway that contributes to Louisiana’s fiscal crisis, jeopardizing funding for education, health care, and infrastructure.”

Over the past decade, a growing number of states have been offering similar perks to families with children before the school year begins. Louisiana’s tax holiday exempts from state sales taxes the first $2,500 of consumer goods purchased for personal use. Proponents exaggerate the benefits of sales tax holidays for working families. Unlike wealthier families, low-income families do not have the luxury of shifting the timing of their purchases to coincide with a sales tax holiday.

The $3.7 million in revenue lost will ultimately have to be offset elsewhere in the budget, either through spending cuts or higher taxes. LBP recommends that Louisiana follow the example of Georgia and suspend the holiday. “Though not politically popular, this would be a prudent step in Louisiana’s fiscal future,” says Ashworth.

The Baton Rouge-based Louisiana Budget Project provides independent research and analysis of Louisiana fiscal issues and their impact on low and moderate income residents.

For a full report on sales tax holidays and more information on LBP, visit www.labudget.org and read ITEP’s brief “Sales Tax Holidays: A Boondoggle.”

For the full press release click here.

Photo credit: Louisiana Department of Revenue

 

 

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