Gov. Gretchen Whitmer’s final proposal for the state budget calls for a sales tax holiday on “school supplies, clothes and certain electronics,” pitched as immediate relief for parents. Lawmakers should reject the idea. Sales tax holidays are politically attractive but economically weak and poorly targeted, often benefiting households that may not need such assistance.

A sales tax holiday temporarily suspends sales taxes on designated goods — in this case, during the third week of August. Similar policies are common elsewhere, with 20 states expected to offer some type of sales tax holiday in 2026, according to the tax compliance firm Avalara.

People who support tax holidays argue that they reduce costs for families and stimulate retail activity. The academic evidence, however, suggests those benefits are often limited and mixed.

A 2017 publication by Federal Reserve economists examined consumer responses to sales tax holidays. They found that shoppers may shift purchases into the tax-free period, increasing sales during the holiday. But the total effect depends heavily on the scope of the policy. Broad, long holidays covering durable goods produce noticeable changes in consumer behavior. Narrow holidays — such as those limited to clothing or school supplies and just for a few days — often do not.

In fact, the authors found that Ohio’s sales tax holiday on clothing and school supplies left “no visible imprint on spending,” even for clothing and accessory retailers. The researchers compared school-related purchases in Ohio with purchases in neighboring Michigan and Indiana — neither of which had a sales tax holiday — and mapped little apparent difference in overall spending patterns. (See figure four, here.)

Other research raises concerns about who benefits. Another 2017 study analyzing scanner data from 35,000 retailers across 117 tax holidays found that those who benefit the most are households without children. Nearly 60% of households benefiting from school supply holidays had no children, and roughly one-third of the lost tax revenue flowed to those childless households.

Higher-income consumers benefit the most from tax holidays. Half of their savings went to households earning more than $50,000 annually, suggesting the policy is poorly targeted as a form of family assistance.

In Michigan, the State Budget Office expects the holiday to provide $15 million in tax relief to shoppers.

Different policy organizations that often do not agree with each other share a skeptical view of such holidays. The Institute on Taxation and Economic Policy argues that tax holidays may slightly reduce the regressive nature of sales taxes but produce minimal overall benefit. The Tax Foundation views them as an inefficient form of tax relief and an implicit acknowledgment that sales tax burdens may be too high.

Michigan lawmakers should focus on policies that provide consistent, broad tax relief rather than temporary tax suspensions that change when households make certain purchases but do not meaningfully improve their finances or promote economic growth.

Until policy makers can demonstrate that sales tax holidays deliver measurable and equitable benefits, they should leave the governor’s proposal on the shelf.

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