It won’t change the world, but the New Jersey sales tax holiday for back-to-school will be something for households, politicians, and retailers.
“The overall effect will be positive,” said Michael Hayes, a public policy professor at Rutgers University-Camden. “I think there’s some definitely potential benefits, but there’s also some potential downsides.”
One potential downside Hayes sees is fewer sales for school supplies and other items included in the holiday.
“You have retail businesses that might have chose to do some kind of sales promotion during that week,” he explained. “They see the sales tax holiday, they decide, ‘hey, the consumer is already going to get a reduction in their overall after-tax price because of the sales tax holiday.’”
The sales tax holiday was announced Wednesday as part of a broader deal for next year’s budget.
The 10-day break from the Garden State’s 6.625% sales tax will occur from Aug. 27 to Sept. 5 at brick-and-mortar and online retailers. The holiday will cover pens, pencils, and other typical school supplies – but also art supplies, reference books, and other instructional materials, computers, and computer accessories like storage equipment and printers.
Gov. Phil Murphy cited rising inflation being “the central worry around all of our state’s kitchen tables” as a reason why leaders have agreed to implement the holiday.
“Whether a student is just starting their academic journey or continuing on to a higher education, a few extra dollars savings will certainly add up,” he said.
State Senate President Nick Scutari described the holiday as a “direct attack” on inflation.
“This is one of the things that our state legislature can do to attack rising costs across the state in a limited number of goods,” he added.
Back-to-school sales tax holidays are nothing new. New Jersey would not be alone as several other states will be implementing them this year. Pennsylvania and New York do not have plans for a sales tax holiday for back to school, while Delaware does not charge a sales tax.
A gimmick, or something more?
Sales tax holidays were long utilized before inflation reached a record four-decade high, according to Howard Gleckman, senior fellow with the Brookings-Urban Tax Policy Center. However, the savings are much less than people expect.
“In New Jersey, given the tax rate and given the fact that the state says the average family pays about $250 per child on school supplies, this would save a family [about] $16 per child,” he said. “[It] isn’t nothing, but it’s really not very much money.”
Gleckman adds that the holiday likely will not translate into additional business for retailers.
“That business just moves around,” he said. “Maybe you would have gone to the store last week and instead you go next week to take advantage of the holiday.”
For The Many NJ, a coalition that advocates for a fair tax code, called the sales tax holiday “a gimmick” that does nothing to make the state a more affordable place to live.
“It doesn’t provide meaningful, sustainable long-term relief for working families who need it the most,” said Sheila Reynertson, senior policy analyst with New Jersey Policy Perspective.
Reynertson points to a report she authored in 2018 that concluded that lower-income families in the state pay a larger share of the sales tax, compared to wealthier families.
“It’s not a targeted proposal, it is difficult to administer, it is more beneficial to wealthy residents, and there’s no guarantee that it’ll do anything to help local businesses here in New Jersey,” she said.
Reynertson suggested the money budgeted for the sales tax holiday could go towards more significant measures that address affordability like improving the Earned Income Tax Credit and expanding it to include more workers.
“The legislature is not meeting the moment,” she added. “We have a record-breaking surplus and federal funds that have yet to be allocated, and we’re not really helping make New Jersey more affordable for folks who need it the most.”
Hayes said the holiday is a “blunt” tool because there’s no check on income levels or whether the buyer has school-age children.
“This is actually available to all households,” he said. “You don’t even have to be a New Jersey resident as long as you’re making a purchase in a New Jersey business, you benefit.”
The winners are…
Wealthier households will benefit more from the tax holiday, according to Reynertson.
“Wealthier residents will shift the timing of their purchases to take advantage of the holiday,” she said. “They have the resources to do that.”
Hayes echoed that point, adding that more affluent households have more discretionary savings and more access to credit. However, he said that retailers are likely to come out on top because they control the variables.
“If retail businesses are strategic and make price changes or forgo sales promotions, then the benefit will go to them,” he said, adding consumers will benefit if prices do not go up.
Gleckman said that all involved “gets a little bit of a win” from the holiday, including politicians who get to show they care about families with kids.
But at the end of the day, he said, “you have to be a very careful shopper.”
“Don’t assume that just because there’s a tax holiday, you’re going to save the 6.625% sales tax in New Jersey,” Gleckman said.