Why economists aren’t sold on ‘tax-free’ days

“Tax-free weekend,” the woman at the counter told me cheerily, after I had stopped at a vintage store Saturday to pick up a dress on my way to White Linen Night in the Heights.

“Oh, awesome,” I replied, inordinately pleased by what felt like a windfall. Had I known, I might have held off other clothing purchases until the weekend. The two-day August sales tax holiday has been a Texas requirement since 1999, on the grounds that cutting the approximately 8 percent tax on certain purchases would help families with the cost of back-toschool season.

Of course, it helps those without kids, as well. I figured I’d take advantage of the tax break the next day to buy a new computer — and was crestfallen when the Apple Store employee told me the exemption didn’t apply to electronics.

But I bought the laptop anyway. And my actions do a little bit to explain the complex effects of an economic tool that grew tremendously in popularity through the 2000s and has lately fallen out of favor.

Sales tax holidays began in 1997 in New York, as a way to keep back-to-school shoppers from going next door to New Jersey, where clothing is tax-free. By 2010, 19 states had tax-free weekends, most of them in the Midwest and the South.

The question is: Are these holidays worth the cost?

August is a big shopping month because it’s back-toschool season; most parents don’t know what they need to buy in July, and in September it’s too late. So instead of buying much more overall, consumers shift their purchases to the tax-free weekend — like I might have, had I known about the holiday ahead of time — thus decreasing income for the government. A 2009 study by a Ph.D. student found that sales and use taxes declined by an average of 4.18 percent in months with tax holidays.

That’s consistent with a lot of recent research that found that sales tax holidays are politically popular but expensiveto-administer programs that don’t save consumers much money either, since retailers may raise their prices slightly. If a holiday is necessary, the conservative-leaning Tax Foundation argues, your sales tax is too high in the first place.

Texas, however, has only expanded its tax holidays since instituting its first 17 years ago. And saving money on that dress you probably didn’t need may give you a warm, fuzzy feeling — depending on what you think of the state probably having less money to spend on schools, roads, and police for special events like White Linen Night in the Heights.