Sales Tax Holidays Do Little to Ease the Burden on Working Families

Testimony from NJPP Senior Policy Analyst Sheila Reynertson in opposition to the proposed sales tax holiday on school supplies.

Published on Jun 28, 2022 in Economic Justice, Tax and Budget

Good afternoon, Chair Sarlo, and members of the committee.

Sales tax holidays have a long track record of being untargeted, complicated, expensive, and easy to exploit, all while being inconsistent drivers of economic activity. If the goal of this legislation is to get money into the hands of working families with children, as well as educators and school districts, the straightforward approach would be to cut them a check through an appropriation, not a tax holiday that will disproportionately benefit wealthier families.

New Jersey Policy Perspective opposes this legislation in favor of fairer and more effective changes to the state tax code that make life more affordable for families.

Untargeted: By spreading the benefit over all residents, S-2914 fails to assist the low-paid and working-class families who need the most help. Wealthier residents are better able to schedule their spending for the holiday window, and when sales tax rates decrease — whether in the short-term or long-term — higher-income residents receive the bulk of the benefit because they tend to spend more. As a response to inflation, this also misses the mark. Lower-income residents’ budgets are more likely to have a higher percentage dedicated to inflation-sensitive categories like food, rent, and utilities — all areas outside the school supplies targeted by this tax holiday.

Complicated: The list of eligible goods captures a diverse but specific array of items. For merchants, administering this list for a short timeframe will add unnecessary burden by inserting them as middlemen, rather than giving direct aid to families.

Expensive: S-2914 does not include a budget estimate, but sales tax holidays have a history of causing substantial reductions in state revenues. Last year, sales tax holidays cost state and local governments more than $550 million nationally. This year, that number looks to grow even more.

Easy to exploit: Research shows that merchants raise their prices during sales tax holidays because there is no provision preventing them from doing so, reducing the benefit for consumers. Additionally, without distinguishing between online and in-person sales, S-2914 does not even ensure that the generated business will flow into local small businesses and communities, rather than Amazon’s corporate pockets.

Instead of one-off gimmicks that fail to make New Jersey more affordable, the budget should instead include strong investments in families and children, as well as sufficient school funding to allow them to purchase the supplies they need. I encourage committee members to vote no on this bill.

Thank you.

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