Are sales tax holiday savings really all they’re cracked up to be?

Parents know how expensive back-to-school season is – new clothes, notebooks and maybe that new set of high-tech mechanical pencils add up fast when shopping for school supplies. Sales tax holidays were meant to be the answer for families on a budget, giving people a short-term tax break on targeted items. But 25 years after their inception, fewer people are still celebrating.

Texas was the first state to inaugurate a tax holiday in August 1999, giving shoppers purchasing up to $100 worth of clothing a waiver on sales tax for one weekend. Despite the nearly $70 million tax revenue loss for the state, the program was a success, prompting other states to launch similar programs over the years to bring a little buzz to their local spending economies. 

These days, 33 sales tax holidays exist across 20 states on items ranging from clothing to ammunition – although back-to-school holidays remain a state favorite. 

And in Texas, state tax revenue loss has ballooned to an expected $143.4 million this year, a financial burden Texas Comptroller Glenn Hegar said was worth taking on as a means of supporting struggling families. 

“For a quarter of a century, Texans have saved more than $1.8 billion on everything from blue jeans to ballpoint pens in preparation for the back-to-school bell,” Hegar said in a statement.. “As the father of three, I know firsthand how these expenses add up over the years, and this weekend is the perfect time for folks to save some of their hard-earned cash on items they need.”

However, if you take away the rigorous marketing campaigns and initial allure of saving a few dollars at the store, there isn’t that much substance underneath that’s actually benefiting consumers, according to Anna Phillips, a sales tax expert with the Tax Policy Institute.

“It hits that basic psychological urge a lot of us have to feel like we’re getting a deal on something,” Phillips said. “In that way, it’s kind of a flashier, bread-and-circuses type of policy. Once you really dive into it, the bread’s not that tasty. The circus isn’t very entertaining, and it’s just not going to be that strong of a benefit.”

Let’s take Texas. If you keep the $100 spending limit on select items, an average state sales tax of 8% means consumers see less than $10 back on their holiday festivities.

Obviously, saving $5 to $10 on a shopping trip can make a real difference for a lot of families. The problem is holidays are predicated on families spending money anyway, which many struggling families will simply decide against altogether as a cost-saving measure, Phillips said. 

If the goal was truly giving low-income families a financial break, Phillips said state legislatures would pursue better alternatives like refundable child tax credits or state earned income tax credits.

“There’s just so many better ways to be doing the thing that it is nominally setting out to do in a way that is just much more efficient and much more effective for families,” Phillips said. 

Families aren’t the only ones trying to save on back-to-school supplies, though. People are accustomed to receiving a list of communal supplies to purchase for their child’s classroom. That’s because more than 90% of teachers spend out-of-pocket money to give their students the best possible chance to learn, a total averaging north of $800 per teacher since the pandemic. 

For teachers, any financial break is welcome, especially to a historically underpaid job, said Randi Weingarten, president of the American Federation of Teachers, a union representing 1.8 million members, mostly consisting of teachers and other school faculty. However, they know the money consumers are saving has to come from somewhere. 

“Ultimately, what taxes do is taxes pay for government services, so it’s with a little reluctance that we celebrate a holiday on sales tax on school supplies,” Weingarten said. 

Those government services sales taxes fund include roads, libraries and, yes, public schools. So, while it’s great to make the back-to-school season more affordable, Weingarten said teachers know tens of millions of lost state revenue means their school may not have the funding to replace their school’s faulty ventilation system or pothole-ridden parking lot. 

Instead, Weingarten said you get a Band-Aid solution to a larger economic problem. And the thing about Band-Aids, after 25 years, they won’t be doing much healing anymore, and they might even be rotting.

“It’s a Band-Aid solution that is welcome to people right now,” Weingarten said. “People look at this and say, ‘Okay, that’s nice. If I’m buying $100 worth of supplies, I’ll get $5 off,’ or whatever the sales tax is. But the point is, the teacher is still buying $100 worth of supplies.”