Greg Albrecht fields a lot of stupid questions as the Louisiana Legislature’s economist, but his voice takes on a special patience when talking sales tax holidays.
The image of the holidays is one of long lines of consumers stuffing shopping carts full of merchandise because they don’t have to pay sales tax. Good for retailers. Good for consumers. One holiday was three weeks ago. Another one begins Friday.
“Advocates always argue that we’re making more than we’re giving up. Well, there’s no evidence for that, particularly when you look at it statewide and at the aggregate level,” Albrecht said, adding that he doesn’t really track the sales tax holidays for his formulas because the outcome “doesn’t move the needle at all.”
“This is not for the state. It’s for the consumer,” said Revenue Secretary Kimberly Robinson. “This is, by far, not one of our more expensive exemptions.”
Nevertheless, possibly ending sales tax holidays, along with some of the billions of dollars of other tax exemptions, are on the table. Robinson, Gov. John Bel Edwards, legislators and business leaders are meeting behind closed doors to work out ways to stabilize the state’s finances.
Budget drafters expect state government to be short at least $1 billion for the fiscal year that begins July 1, 2018. That’s when a penny of the five-cent state sales tax expires. When local governments tack on their own amount, Louisiana’s sales taxes are the highest in the nation at an average of 10 cents on every dollar purchased.
In the scheme of tax giveaways, sales tax holidays are tiny. The Department of Revenue estimates the state will lose about $2.8 million in sales taxes from all three holidays — one for general goods, one for guns, and a third for hurricane supplies — for the fiscal year that began July 1. That’s about 100th of 1 percent of the $2.9 billion in total sales taxes collected by Louisiana (about 48 percent more is exempted). In comparison, the Quality Jobs Program, which is for large corporations, should account for about $28.6 million in forgiven sales taxes this fiscal year.
Colloquially known as the Back-to-School holiday, the sales tax break that took place Aug. 4 and 5th, actually applies to most purchases, but only up to $2,500. The holiday exempts to 2 percent of the sales tax, so a consumer who spent the full $2,500 saved $50.
The Second Amendment Weekend Sales Tax Holiday starts Friday and runs through Sunday, Sept. 3. It’s a little more generous, exempting local taxes and 2 percent of the state levy and has no cap on most purchases of guns and hunting equipment. If a consumer spends $2,500, the savings can be up to $200, depending on the locality.
The Tax Foundation cites several studies that show annual sales don’t increase, regardless of how often the cash register rings on a tax holiday. The findings indicate that consumers may wait a week or two, but they’re still buying what they planned on buying.
The result is a tax break that favors specific items at the expense of others, according to the Tax Foundation, a Washington, D.C., think tank founded by some of the nation’s largest corporations.
The 80-year-old group released a report in late July condemning the holidays as a political expediency and not “a sound tax policy.” Only 16 states still have the holidays after Georgia and Massachusetts dropped them earlier this year.
Most of Louisiana’s legislative efforts earlier this year to roll back some of the tax breaks for business and special interests ran into a buzz saw of opposition as did a bill to consolidate sales tax holidays.
“On one hand, you have retailers who plan for it. Local guys like it because it makes it easier for them to compete with the big box stores,” said Dawn Starns, the Louisiana director of the National Federation of Independent Business, the nation’s largest association for small businesses with headquarters in Nashville.
On the other hand, the organization would prefer lower sales taxes and changes in laws that would put small retailers on the same plane as the larger corporations, she added.
For state Rep. Julie Stokes, the Kenner Republican who chaired the Sales Tax Streamlining and Modernization Commission, the issue of sales tax holidays is indicative of a legislature that can’t agree on a way to repair the state’s fiscal structure to ensure a reliable source of revenues every year to pay for government services that few want to cut further.
“We’re sending a message to the whole country about how dysfunctional we are,” Stokes said. “People are going to have to show some political courage. So far, we haven’t seen it.”