(The Center Square) – Starting Friday and through August 5, Tennessee will have a sales tax holiday on food and food ingredients in stores as well as the retail sale of prepared food in restaurants, as well as the regular vacations on clothing, school supplies, and computers.
The addition of food and restaurants is estimated by the state to provide $ 50 million in tax relief for those spending while on vacation. Sales of alcohol in establishments will remain subject to taxes. The current state sales tax is 7.0% and the average local sales tax is 2.5%.
This year, 17 states will benefit from sales tax exemptions, up from a maximum of 19 in 2010.
The sales tax holidays are intended to encourage additional spending by consumers in businesses during the holiday season.
But a tax foundation to study refutes this hypothesis.
“Evidence shows that instead of increasing purchases, consumers are simply changing the timing of the purchases they were already going to make. For most of those who shop on sales tax breaks, the exemptions simply offer a modest and unexpected benefit for doing something they would have done anyway, ”the report concludes.
The Tax Foundation report says it is clear that the holidays have broad political support.
“Despite their political popularity, sales tax exemptions are based on bad tax policy and distract policymakers and taxpayers from real, permanent and economically beneficial tax reform,” the report says, using data from the Federal Reserve. “Sales tax exemptions introduce unjustifiable government distortions into the economy without giving a significant boost to the economy. “
The report also added that politicians claim the holidays provide tax relief.
“This too is overestimated,” the report concludes. “Although sales taxes are somewhat regressive, this fact does not make sales tax exemptions effective in providing relief to low-income people. To provide small tax savings for low-income people, vacations also offer big savings for higher-income groups. “
Gov. Bill Lee’s budget amendment originally provided for a two-week restaurant sales tax holiday with $ 100 million set aside for the measure, but was reduced to one week during legislative appropriations negotiations .
“I am especially proud to offer tax cuts to get money back for Tennesseans to encourage them to patronize industries that have been disproportionately and negatively affected this year,” Lee said when announcing his proposal. sales tax holiday.
The reduction came when the legislature decided to add $ 250 million to the state’s pension fund while halving Lee’s proposals for $ 200 million for broadband, $ 200 million for local government grants and the $ 100 million tax holiday for restaurants and food sales to offset the pension burden.
“We know the industry has been hit hard during the pandemic,” Representative Patsy Hazlewood, R-Signal Mountain, said after negotiations. “This will hopefully allow the Tennesséens to go out, have a good meal and help this industry.”