Louisiana tax holiday may save shoppers $4.5 million, though some question the value

By David Jacobs | The Center Square

Louisiana shoppers won’t have to pay state sales taxes on most purchases Friday and Saturday.

The one-time tax holiday is meant to help residents suffering from the impacts of the COVID-19 pandemic and multiple hurricanes, though some experts believe such holidays represent bad public policy.

Most purchases of up to $2,500 will be exempt from the state’s 4.45 percent sales tax, though local taxes still will be imposed. The holiday does not apply to vehicles or commercial purchases.

Shoppers are expected to save about $4.5 million, money that otherwise would go into state government’s general fund, according to the Legislative Fiscal Office.

Legislators unanimously approved legislation by House Speaker Clay Schexnayder to create the one-time, two-day holiday, and Gov. John Bel Edwards signed the bill into law. Lawmakers in 2018 suspended Louisiana’s annual sales tax holidays for seven years as part of the effort to balance the state budget, though some lawmakers said they didn’t realize the suspensions were part of the budget deal until after passage.

Sales tax holidays are popular across party lines. Louisiana residents battered by a record-breaking hurricane season, the COVID-19 pandemic, and the deliberate economic slowdown imposed to control the spread of the new coronavirus deserve a bit of tax relief, supporters said.

“The conservative Tax Foundation and the progressive-leaning Institute on Taxation and Economic Policy don’t agree on much when it comes to taxes,” the Louisiana Budget Project countered in comments posted Thursday. “But both groups understand that ‘sales tax holidays’ – a favorite trope of politicians – are bad economic policy.”

Sales tax holidays do not promote economic growth or significantly increase consumer purchases; instead, buyers simply shift the timing of purchases, the Tax Foundation says. Some retailers raise prices during the holidays, reducing consumer savings.

The Institute on Taxation and Public Policy likewise notes that consumers shopping during a sales tax holiday weekend may find that “the sales suspiciously don’t seem quite as good as they had been the weekend before.”

“Nonetheless, 16 states will hold sales tax holidays this year and they all share the same basic issues: they are not targeted to the people who need them most, they drain away funding needed for state and local priorities like schools and roads, and they are wasteful distractions compared to policy options that would truly benefit typical families while boosting state economies and improving upside-down tax codes,” the institute said in 2019.

The holiday also encourages shoppers to leave their homes for potentially crowded stores at a time when COVID-19 cases are rising, the Louisiana Budget Project notes.