Sales tax holidays may not help as much as you think
Shoppers in Florida will be saving at the cash register later this month.
The two week long Back-To-School sales tax holiday begins on July 24, 2023.
Sadaf Knight, CEO of Florida Policy Institute, tells WMFE's Talia Blake that you may not be saving as much as you think.
Listen to the full conversation in the player above.
Talia Blake: With inflation and all the other expenses families are dealing with, how much do these sales tax holidays actually help consumers? How effective are they?
Sadaf Knight: They're not as effective as you think they might be. When we do the research and look at who utilizes the sales tax and what kind of relief they provide, they don't actually promote economic growth or increase purchases by consumers, or provide targeted tax relief the way that we might expect. So, they do cost the state in terms of revenue that they're not collecting. But, there's better ways to provide relief to families in Florida who are facing issues like inflation and the rising cost of living.
Talia Blake: You said that consumers don't really get the benefit they think they're getting. So what about businesses? How do sales tax holidays impact businesses here in the state?
Sadaf Knight: Many people say that these periods where they don't collect sales tax actually increase economic activity, provide a boost in terms of retail, but that's not been found when we look at the research. They don't really encourage people to shift their spending habits in any way or the timing of their spending to fall within these timeframes to match up with when the exemptions are happening.
Talia Blake: So for businesses, it's not really a gain or a loss, in a sense?
Sadaf Knight: Not really, no.
Talia Blake: Governor Ron DeSantis signed the tax relief plan back in March, which he says the back to school tax holiday will save Floridians some $160 million in total. Is there anything new added to the list this year for back to school savings that residents should know about?
Sadaf Knight: No, I don't think so. This is the 21st time since 1998, that Florida has had a back-to-school sales tax holiday. The length has varied from three days to 10 days, but this year it's a two week period. It includes the usual exemptions for things like clothing, footwear, wallets, bags, school supplies, and also computers. So no, I don't think there's anything new in this particular sales tax holiday this year.
Talia Blake: The back-to-school sales tax holiday is starting soon on July 24th, but that is not the only sales tax holiday that we have in this state. In total, can you talk to me about the impact of sales tax holidays here in Florida?
Sadaf Knight: There's six sales tax holidays that were included in this tax package. There's the Energy Star appliances, one for natural gas ranges and cooktops, the back-to-school one, disaster preparedness, the Freedom Summer sales tax holiday and the skilled worker Tool Time sales tax holiday. These all together cost the state $637 million, and they're for various things. As I mentioned before, they don't always promote the kind of economic growth that we think they will. And it's often wealthier taxpayers who are best positioned to benefit from these holidays, since they have more flexibility when it comes to shifting when they might buy something, or take advantage of the tax break, which if you're a family that's more constrained with your household budget, you might not have that flexibility to do so.
Talia Blake: You said that these sales tax holidays aren't really the best way to give relief to Florida. So what other ways could this state give relief to Floridians when it comes to their finances and buying supplies like this?
Sadaf Knight: One way that many other states have enacted is to establish a state level Earned Income Tax Credit. So at the federal level, there's a earned income tax credit that provides a refund or credit to working families working taxpayers. And it's targeted because it's based on your income. So it phases out as your income and you know increases. Many other states have such an earned income tax credit at the state level, and Florida does not. And this definitely would put money directly back into the budgets of Florida's workers and families. If we had what we're calling a Working Floridians Tax Rebate, it would directly benefit over 2 million families making low to moderate incomes, and put $1 billion back into their pockets. So that's $500 per taxpayer, which is pretty significant. And that would go directly to people who are most impacted by economic forces, like inflation and cost of living low wages, things like that.
Talia Blake: Yeah, and we know with inflation right now that things like school supplies are not the cheapest they've been.
Sadaf Knight: Correct.
Copyright 2023 WMFE. To see more, visit WMFE.