Arizona Budget and Spending Colorado Hunger and Food Programs New Mexico Oklahoma Taxes Top Issues Utah Welfare

Food, Folks, and Fiscal Policy

Is taxing groceries ‘regressive’?

State governments are staging an impressive campaign of tax relief in 2023. From Idaho to Wisconsin, Michigan to Kentucky, Louisiana to Georgia, Virginia to Connecticut, many Americans’ wallets will soon get a little thicker.

Good news? Yes … but.

Some types of tax relief make more sense than others. Groceries, for example, are not subject to sales tax in most states. The exemption is on the books throughout the American Southwest — with Oklahoma (low-income credit available), Colorado (local governments only), Utah (lower rate), and Arizona (local governments only) the exceptions.

Special treatment for groceries is justified as “progressive” — i.e., taxing food hits lower-income households harder than rich folks. But scratch the surface a bit, and another picture begins to appear. As the Tax Foundation noted in study released last spring, the “fairness”

narrative, however superficially compelling, is marred by several flaws. Most importantly, it either neglects or fails to appreciate the full impact of the universal policy of exempting from sales tax any purchases made using federal food-purchasing assistance programs, primarily the Supplemental Nutrition Assistance Program … but also the more narrowly targeted Special Supplemental Nutrition Program for Women, Infants, and Children … . States’ receipt of federal grants to administer these Food and Nutrition Service-funded benefits is contingent upon exempting these purchases from sales tax, and all states do so — even if groceries are otherwise in the sales tax base. This policy alone dramatically reduces taxable consumption for the lowest income deciles.

Dick Minzner, the former secretary of the New Mexico Taxation and Revenue Department, and Brian McDonald, the former director of the University of New Mexico’s Bureau of Business and Economic Research, argued that in their state, the “major beneficiaries of the removal of the tax on food are customers who shop for higher-end food products at expensive grocery stores and who have few budgetary constraints. Certainly the great majority of this tax relief goes to people with above-average incomes.”

There’s a philosophical problem, too. Economists and policy analysts from across the ideological spectrum agree that a prudent tax imposes a single, low rate on a broad base — and allows few, if any, exemptions, deductions, and credits. Giving groceries a break violates a core tenet of wise taxation.

Finally, unlike corporate earnings and oil-and-gas revenue, grocery sales are not volatile. The Tax Foundation notes that “[e]xcluding
groceries from the sales tax shrinks the … base by excluding a particularly stable share of it.” For the elected officials and bureaucrats who plan and implement fiscal policy, predictability is important.

In their recently concluded session, Utah lawmakers passed a law that eliminates the Beehive State’s sales tax on groceries, pending voter approval of an unrelated constitutional-amendment question in 2024. In Arizona, the GOP-controlled legislature intends to eliminate the local-option sales tax on groceries, but the proposal faces a likely veto from the Democrat in the governor’s office. Republicans in Oklahoma’s lower chamber are pro-repeal, and the the Sooner State’s chief executive agrees, but the GOP-majority Senate is skeptical.

SPPI will keep on top of the grocery-tax issue in our region — and keep our fingers crossed that legislators and voters alike base their decision-making on basic economics and sound policy principles.

By D. Dowd Muska

Dowd brings nearly 30 years of research and writing experience to the Institute. A veteran of several think tanks, he is an expert on government at the municipal, county, state, and federal levels.

Raised on an apple orchard in the Connecticut River Valley, D. Dowd Muska is a researcher, writer, editor, and commentator. His focus is the nexus of fiscal policy, economic development, and technology.

Mr. Muska is the author of numerous policy studies, and his writing has appeared in newspapers throughout the nation, including the Las Vegas Review-Journal, The Detroit News, the Orlando Sentinel, the Cape Cod Times, the Santa Fe New Mexican, the Hartford Courant, the Waco Tribune-Herald, the Albuquerque Journal, the New Haven Register, and The Oklahoman. A graduate of The George Washington University, he lives in the Albuquerque metro area, but has started (very) early planning for a relocation to the Sierra Blanca in Lincoln County, New Mexico. He recently launched the Substack platform No Dowd About It.

Leave a Reply

Your email address will not be published. Required fields are marked *