Holding onto Tax Holidays

May 12, 2022

The Tax Foundation

Standing on shaky ground: In an attempt to address high inflation, policymakers at both the federal and state levels have leaned into sales tax holidays and gas tax holidays. Policymakers understandably want to be responsive to rising prices, and most states have revenue to spare. But there are far better ways to provide tax relief—short- or long-term—than inefficient tax holidays.

 Politics and policy: Research finds that sales tax holidays, while politically popular, are both ineffective and inefficient. Our recent analysis also finds that grocery tax exemptions are not as progressive as some might think.

 Sound and sustainable reform: For states that are projecting sustained revenue growth in coming years, permanent and sustainable tax rate relief is most appropriate—and infinitely superior to tax gimmicks, explains V.P. of State Projects Jared Walczak. In what is already a year of significant bipartisan focus on tax relief, 2022 is also launching something of a flat tax revolution.

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