The debate over whether and how to tax food has been in the news a lot lately. On the one hand, policymakers need the revenues generated from applying sales taxes to a broad base of goods and services. On the other hand, taxing food is regressive, and lawmakers always believe they will benefit politically from eliminating some portion of taxes. The result is that only a handful of states tax food.
This is currently a topic of a debate in Utah, where Governor Jon Huntsman wants to remove the sales tax on food entirely. But according to the Senate Majority Leader Sheldon Killpack, "(There's) really not much of an appetite for removing the rest of the sales tax." Governor Huntsman's plan to replace the revenue lost from removing the 2.75 percent sales tax on food is to increase the cigarette tax to $3.00 a pack. There are many reasons why increasing the cigarette tax is a lousy idea, regressivity and declining base being the most serious. Utah policymakers should follow the lead of other states like Idaho which tax food just as other goods are taxed, but then offer a targeted grocery tax credit ensuring that low-income folks receive some assistance for paying sales taxes.
Speaking of Idaho, Governor Butch Otter recently championed an increase in the state's grocery tax credit, but now that scheduled increase is threatened because the state is having difficulty balancing its budget. Kudos to Governor Otter for backing the scheduled increase in his State of the State address, rightly saying, "Idaho taxpayers are struggling. And that means we must fulfill our commitment to keep increasing the grocery tax credit. The budget I'm submitting today does just that and holds us to a principle-based policy that empowers Idahoans." While it may be tempting to delay the scheduled credit increase because of budget concerns, it's necessary that those most in need receive an increase in the credit that helps offset the sales tax they pay on food. For more on low-income credits and sales tax relief, read ITEP's policy brief.