The story on Alabama’s sales-tax holiday described the number of communities that are participating, though it should have warned them about the long-term consequences of this boondoggle.
A three-day sales-tax holiday for selected items does nothing to provide relief to low-income taxpayers during the other 362 days of the year. In the long run, sales-tax holidays leave an unfair tax system basically unchanged. It’s worth noting that wealthy families benefit from the holiday, too, and they have an even greater ability to shift their spending to take advantage of the tax break.
Sales-tax holidays are also costly. Alabama can ill afford to stop collecting taxes, even for just a couple of days. Revenue lost through sales-tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.
Well-intentioned policymakers need to understand that sales-tax holidays are simply too insignificant, poorly targeted and too temporary to meaningfully change the regressive nature of a state’s tax system. If they really want to help Alabamians’ bottom lines, they should work to make the state’s tax structure permanently fairer.
Institute on Taxation and Economic Policy