Washington House boosts sales tax holiday, but critics aren’t buying

(The Center Square) – The chair of the Washington State House Finance Committee is a fan of the sales tax holiday included in the House’s proposed supplemental budget for the 2021-23 biennium.

Rep. Noel Frame, D-Seattle, said as much about House Bill 2018, the sales and use tax holiday over the Labor Day weekend for purchases under $1,000 that’s included in the budget plan.

“A sales tax holiday is perhaps the fastest, most direct way for us to get money into the pockets of Washington families,” Frame said at Monday’s virtual news conference on the Democrat majority’s operating budget proposal.

She went on to explain, “You saw in addition to that, the outreach for Working Families Tax Credit program, which is another great way for us to do that, except that that program doesn’t start until next year, and we were asked by the Department of Revenue not to try to expand it while they’re still standing it up.”

Frame concluded with another pitch for the sales tax holiday.

“So I just want to emphasize that this is perhaps the fastest and most direct way to get money to Washington families,” she said.

Frame was supported by House Majority Leader Rep. Pat Sullivan, D-Covington.

“We wanted to time it for back to school time for our students,” he explained. “So, it made sense to do it around September and around that holiday period, Labor Day. You know, those two things kind of combine to make that seem like a good time frame to actually have that sales tax holiday, acknowledging that there’s a lot of expenses. You know, our middle and lower income folks have to spend for school. That’s a perfect time to do it.”

Others didn’t share the Democratic pair’s enthusiasm for the sales tax holiday in lieu of more substantial tax relief for a population battered by the COVID-19 pandemic and dealing with consumer prices that rose 7.5% annually by the end of January, the fastest rate since February 1982.

“Sales tax holidays are not the fastest way to get money into the pockets of families, especially a sales tax holiday that is over 6 months away,” Jeremy Horpendahl, an economist at the University of Arkansas, told The Center Square in an email. “If the state of Washington wants to get money into people’s pockets, the fastest and most direct way is to just give them cash, right now. I don’t know if that’s the best approach: spending is already at record levels in the country, part of what is contributing to supply chain issues and price inflation. But if Washington wants to help out struggling families, just give them cash.”

Horpedahl was critical of the spending limit as well.

“Also, the tax holiday for any purchases under $1,000 seems very strange,” he said. “The idea that this is just intended to help out low-income families buy back-to-school supplies is nonsense. Many high-income people, buying expensive goods that have nothing to do with back-to-school, will benefit from this.”

He continued, “For the states with regular sales tax holidays, they specifically limit what you can buy (school supplies, computers, etc.), and also set dollar amount limits that are well below $1,000 (except for computers in a few states). For example, a few states include clothing, since certainly kids buy clothes for school, but usually limit it to $100 items, so people aren’t just buying designer clothes and saying it is for school.”

“All of these limitations other states place on sales tax holidays do add complexity for retailers trying to program their computers and cash registers,” Horpedahl concluded. “So the one thing Washington has going for it with this proposal is that it’s pretty simple to implement. But it’s not targeted to help low-income families, it’s almost impossible to predict the fiscal cost, and it’s the opposite of fast and direct – it won’t happen for 6 months, and it’s very much an indirect subsidy.”

Jason Mercier, director of the Center for Government Reform at the Washington Policy Center, has been a long-time advocate for cutting the sales tax. He was not impressed with the proposed sales tax holiday.

“A one-time (only for 2022), limited for 3-days ‘sales tax holiday,’ only if you buy what lawmakers want when they want is not broad-based tax relief,” he told The Center Square in an email.

He characterized the sales tax holiday as a political scheme.

“As noted by the Tax Foundation, this type of tax policy is a ‘political gimmick,” he said. “With record inflation and $10.5 billion in forecasted revenue growth, Washingtonians expect and deserve lawmakers to prioritize real and meaningful tax relief, just like is occurring across the rest of the country. There is no need to spend $300,000 to market the complexity of a temporary sales tax holiday. Cut the sales tax rate instead!”

Andy Nicholas, senior fellow at the more progressive Washington State Budget & Policy Center, agreed with Mercier on the merits of the sales tax holiday.

“We are disappointed to see that the budget assumes a sales tax holiday,” Nicholas said at a House Appropriations Committee public hearing on the proposed House budget that was held hours after its unveiling. “Experience in other states shows that this policy just roundly fails to achieve its goals.”

The state House and Senate released their supplemental budgets on Monday. Both budgets, with their increased spending, reflect the major revenue increases the state has seen over the last year.

The $65 billion House budget adds $6.2 billion in new spending to the two-year budget passed by lawmakers last April. The $63.4 billion Senate budget represents an increase of $5.8 billion in new spending.

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