Illinois is not among the states offering a “back-to-school” sales tax holiday this year.
Seventeen states will hold some form of a tax holiday in 2018, down from a peak of 19 states in 2010. Some supporters argue the temporary reduction spurs spending and saves consumers money. Jesse Hathaway, research fellow for budget and tax policy at the Heartland Institute, said that doesn’t end up happening.
“Tax holidays don’t boost the sales overall, they don’t increase economic growth,” Hathaway said. “However, they do increase the cost of compliance with tax rules. They add to the complexity.”
A 2017 study by Federal Reserve researchers shows that consumers don’t typically spend more because of the tax holiday. Instead, they simply shift the timing of purchases to the period in which the sales tax is eliminated.
Illinois last held a tax holiday in 2010. State Sen. Dave Syverson, R-Rockford, voted against the proposal at the time and notes the results weren’t encouraging.
“The weekend we had the sales tax holiday, the advertisements were for 30-percent off school supplies,” Syverson said. “The following two weekends, the advertisements were 40-percent and 50-percent off. The stores knew it was a no-tax weekend, so they artificially kept the prices even higher. Individuals thought they were getting a deal, but they actually were paying more.”
Syverson said a proposal to continue the tax holiday was defeated in 2011, though the idea is discussed just about every year in Springfield.
“It makes for nice headlines, and it makes them look like they’re populists,” Syverson said. “But most of these people are the same lawmakers who have been raising taxes on everyone.”
Hathaway said the temporary nature of the tax relief distracts both residents and officials from addressing the bigger issue.
“If lawmakers really want to save money for consumers and help people keep more of their money, then they should be reducing the sales tax rate not just on one weekend, but year-round. It should be a lower tax rate that covers more things that is fair to everybody.”
Iowa, Missouri, and Wisconsin all offer some form of a sales tax holiday in the month of August.