Tax Gimmick Would Have Little Benefit

Governor Walker has said he will include a back-to-school sales tax holiday in his proposed budget, a gimmick that would reduce the resources available to support Wisconsin’s schools, university system, and communities, without providing any real economic benefit.

The sales tax holiday would exempt purchases of school supplies, computers, and clothing from the sales tax for two days in August 2017 and again in August 2018. That change would cost the state an estimated $11 million a year in lost tax revenue.

A sales tax holiday would do little to boost consumer spending or give a tax break to Wisconsin families with low incomes. There are a whole host of downsides to a sales tax holiday, including:

• Instead of encouraging consumers to spend more money, sales tax holidays simply shift the timing of the spending;
• A sales tax holiday on back-to-school items involves lawmakers picking winners and losers among types of goods that are exempt from the sales tax; and
• Sales tax holidays are not an effective tool for giving a tax cut to individuals with low incomes, since a large amount of savings is given to people in higher income groups as well. In fact, wealthier families are often better positioned to take advantage of the tax break because they can more easily shift the timing of their purchases – an option that is more difficult for families living paycheck to paycheck.

A back-to-school sales tax holiday wouldn’t do much to help families who have children in school, but it would make it harder for Wisconsin schoolchildren to get the excellent public education they deserve. Tax cuts like this one reduce resources available to fund public schools, resulting in crowded classrooms and fewer academic opportunities for students. States like Massachusetts and Florida have recently pulled back on their back-to-schools sales tax holidays as they balance the costs against the limited benefits.

Governor Walker’s proposal comes at a time when voters are making it clear they want more resources for schools rather than less. Voters are much more likely now to approve school district requests for exceeding state-imposed spending caps than they were a few years ago, even as the number of requests has increased. By reducing resources available for education or other important public services, the proposed sales tax holiday flies in the face of what voters have been expressing when they approve school referendums.

Lawmakers who want to boost public education and who value prudent management of the state’s finances should steer clear of a sales tax holiday. This proposal provides no clear benefit to Wisconsin families and students, instead making it harder for Wisconsin to support public schools.