“Tax-Free Weekend” Underscores Importance of Sound, Stable and Uniform Tax Policies

My colleague David Stokes has been in the news in recent weeks as one of a handful of vocal (and correct) policy professionals objecting to local property tax freezes for seniors, a policy enabled by legislation passed earlier this year. As he noted in his testimony to St. Louis County, freezing taxes on one set of payors without reducing spending “will almost certainly lead to higher tax rates on those properties that are not subject to the property freeze.”

My general position on taxation has always been about maximizing growth, and specifically moving from income taxes to the least destructive tax for growth—the property tax. That does not mean, however, that I am unaware of or unsympathetic to alternative considerations that could be reasonably offered.

• Property taxes are the least destructive tax for promoting growth, but other objectives beyond “growth” do enter the calculus for policymakers. Is it “fair” for a taxpayer who owns property to get a tax benefit, but not a taxpayer who rents? Are real property taxes problematic in the same way personal property taxes are, or are they completely different policy issues? Like most things in life, tax policy is not a one-dimensional issue; stipulating to that reality is appropriate, even as I support reforms that stoke growth, against possible alterative priorities.
• From a practical perspective, it also isn’t great if seniors on fixed incomes find themselves unable to make their property tax payments if a massive assessment adjustment, like what we’re seeing in Jackson County, makes staying in their longtime homes fiscally impossible.

All that said, cutting the state and local tax base to ribbons, whether on a permanent or temporary basis, is a precarious proposition precisely for the very reason David highlights: unless government spending falls as tax exceptions are made, the cost of government will inevitably fall to the rest of the taxpayers.

And speaking of . . .

Missourians shopping for school supplies, clothes and computers during the state’s tax-free weekend Aug. 4-6 can save up to 5% more than in previous years.

A 2021 Missouri law taking effect this year prevents all cities, counties and special tax districts from charging local sales taxes during the back-to-school weekend.

Tax holiday shoppers have been exempt from the state sales tax of 4.225% since 2004, but many municipalities still charged local sales taxes. With local sales taxes eliminated, this year, shoppers will save up to 9%.

I would love to say that the sales tax holiday for school supplies is a net good for the state and families, but as The Tax Foundation notes:

While sales tax holidays have been politically popular for a long time, they have seen a boost this year as lawmakers look for ways to share surplus funds with taxpayers who are struggling to afford goods and services amid high inflation. But however well-intended they may be, sales tax holidays remain the same as they always have been—ineffective and inefficient. [emphasis mine]

Sales tax holidays have been and always will be dubious tools for promoting reasonable public policy objectives—they simply shift consumer spending patterns instead of changing them and are often used to promote illusory economic development benefits. As with tax credits on income taxes and tax abatements on property taxes, carving up the sales tax base with “tax holidays” can have similarly unintended consequences, even if the policy is good politics and good intentioned. But as with the senior property tax carveout, even a good intentioned sales tax holiday is bad policy.