Food Taxes Should Die, but Won't
Against all common sense and fairness, some states continue to tax grocery purchases.
How much do you pay for food at the grocery store? In some states—thanks to growing discussions about food taxes—you could be paying more money for less food if lawmakers have their way.
What are food taxes? They're particularly odorous and onerous taxes on purchases of food for home preparation and/or consumption from grocery stores and similar establishments. They're distinct from taxes that single out a particular food category—such as soda taxes—and also from taxes on foods sold for immediate consumption by restaurants, which are subject to taxes in most states.
In recent months, several states have proposed new food taxes. Some states have proposed to revive old ones. But others have also moved to repeal or reduce existing taxes.
New Mexico, one of the states considering a food-tax revival, adopted a statewide food tax in the 1930s "as part of a 'temporary' and 'emergency' measure to keep schools open during the Great Depression." The state repealed its "temporary" food tax only in 2004, after earlier efforts under then-Gov. Gary Johnson (and a dozen or so governors before him) fell short.
Since 2004, though, the state has chipped away at the total repeal, and the drumbeat has grown louder among state lawmakers and activists for a partial or total revival of the tax, at a 4 percent rate.
If New Mexico's proposed 4 percent tax seems high, consider that lawmakers in West Virginia—which repealed its own state grocery tax in 2013—recently proposed an 8 percent tax on groceries, which would be the highest in the nation.
Thankfully, not all movement on food taxes in the states is in the wrong direction. In Idaho, recent efforts to repeal the state's existing grocery tax appeared to be floundering, and were given little chance of success. But just yesterday, a coalition of Democrats and Republicans in the state senate voted to repeal the tax. Utah lawmakers rejected a proposal to more than double the state's existing sales tax. And Tennessee lawmakers have taken steps to reduce that state's food tax by 20 percent.
A recent analysis of state grocery taxes by the Center on Budget & Policy Priorities CBPP), a Washington, D.C.-based nonprofit that looks at how federal and state budget decisions impact low-income Americans, found that nearly two-thirds of states exempt most foods from taxation.
But that doesn't tell the whole story. Because many local governments have their own food taxes, notes a Pew Charitable Trusts piece, "people living in more than a third of the nation's roughly 3,000 counties are taxed at some level on the food they buy at the store." The impact of those taxes isn't small peanuts.
"The average (combined) grocery tax rate for the places taxing grocery was 4.3%, which translates to more than $200 for a family with annual grocery bill of $5,000," says a 2016 study by university researchers from Auburn, University of Kentucky, and Cornell.
What makes food taxes so attractive to lawmakers? A Pew piece last year noted the easy allure of food taxes: they "provide a steady source of revenue in volatile times." The same factors that make food taxes so attractive to lawmakers are what make them so odious to many consumers: they're all-but-impossible to avoid. Everyone buys food; food taxes punish everyone who buys food.
Another reason food taxes are unpopular is that while food buyers all pay the same tax rate, the taxes don't punish everyone equally. They're regressive, in that low-income buyers pay a larger percentage of their income for food. Low-income buyers are also less likely or able to frequent discounted membership grocers like Costco—where taxes may be the same but food costs less—or to buy meats and produce at farmers markets, which are exempt from sales taxes in many states.
For these reasons, New Mexico's proposal to revive its food tax has been met with a firestorm of criticism from advocates for poor and low-income consumers in the state. Similar opposition has arisen in Utah and other states.
But problems with food taxes don't end with their regressive nature. Food taxes also hurt small businesses. And then there's the question of the potential negative health impact of food taxes. If healthier food costs more—as many argue—then taxing grocery purchases forces low-income consumers to choose less healthy options.
Food taxes are a lousy idea that hit low-income consumers the hardest. Most states agree. Let's hope those that still tax food—or are considering a revival of their food taxes—come to see the errors of their ways.