Sales on Food General History of Tax By: Natalie Done, Ann …., & • Tax has been around since ancient Jessica ….. times • The Egyptians used taxation as did the Romans • “finance services that the State is obligated to provide” and to

fulfill its agenda. http://www.worldwide-tax.com/history_of_tax.asp

Purposes of Tax Types of Tax • One way states and localities • : generate revenue is through food tax Varying rates on graduated scale based on income of taxpayer • “ analysts advise state Ex: increases with income • : policymakers to design efficient, Fixed rate separate from taxpayer’s income equitable, and stable tax systems • Food Tax is a Regressive Tax • …It ought to be fair to different • Lower-income people pay a higher share of their income on Food Tax groups of people” (http://scholar.google.com/scholar?hl=en&lr=&oe=ISO-8859- • Over one year a food tax in the 8% 1&q=cache:5p7uBoVvaTEJ:www.taxpolicycenter.org/sfc2003/pdf/MaagMerrimanStateTaxNotes03.pdf+%22food+tax%22) range paid by a family of four is enough money to feed them from Thanksgiving to Christmas • Since food tax is a regressive tax, is • Chris Daly of Chattanooga, chairman of Tennesseans for Fair Taxation (http://www.courier- journal.com/apps/pbcs.dll/article?AID=/20051228/NEWS0104/512280404/1008/ARCHIVES) the food tax fair?

U.S. History • Of these states:

• Twenty-nine states and the District of • As of 2005, forty-five states and the Columbia exempt most food purchased District of Columbia levy general for consumption at home from the state sales taxes. Most of these states . Louisiana and New Mexico have in some way altered their are the states that most recently original sales tax standing. eliminated their sales tax on food • Four states tax groceries at lower rates than other goods; they are Illinois, Missouri, Tennessee and Virginia.

1 • Five states — Idaho, Kansas, Oklahoma, South Dakota, and Wyoming — tax groceries fully but offer credits or rebates to offset some of the taxes paid • Seven states continue to apply their on food by some portions of the sales tax fully to food purchased for population. These credits or rebates home consumption without providing usually are set at a flat amount per any offsetting relief for low- and family member. The amounts vary, but moderate-income families. They are typically are insufficient to give eligible Alabama, Arkansas, Hawaii, Mississippi, households full relief from sales taxes South Carolina, Utah, and West Virginia. paid on food purchases.

• Local governments, which in many states levy their own sales taxes, usually follow state policy on the food exemption. Major exceptions include localities in Arizona, Colorado, Georgia, Louisiana and North Carolina. Grocery food purchases in those states are fully or partially exempt at the state level, but typically taxed at the local level.

Utah’s Current Situation What To Do… • Rep. Merlynn Newbold, R-South Jordan, is proposing a bill that would eliminate the tax on • Currently Utah charge 6.6% on all groceries (not pre-prepared foods) completely but add a small increase to the sales on food items that are purchased and non-food items to protect cities and counties doesn’t offer any credit or rebate to from revenue losses. offset the cost of food for lower • She is working with the cities and towns to make sure none are unfairly burdened. Under the income families. legislation, the city portion of the state sales tax on non-food sales tax would increase one-tenth • Plus, Utah is currently one of only six of 1 percent, to 1.1 percent. The county sales tax on non-food items would increase from 0.25 states that still taxes food. This percent to 0.28 percent. Lawmakers also want to shows, that since the previous graph come up with a formula to share revenues so small communities don't suffer revenue was made, 3 states no longer tax shortfalls. food.

2 Example of how the Sales Tax on Food Places a What the bill would achieve.. Disproportionate Burden on Lower-Income Households

• To purchase a nutritious diet at the • Reduce the burden that is grocery store, a family of four in 1997 in the continental United States must spend placed on low income at least $4,950 per year, according to the U.S. Department of Agriculture. If a state’s individuals and families. combined state and local sales tax rates total seven percent - a typical rate in • The removal of the grocery states that tax food - the annual tax bill on tax would mean a tax break of that family’s grocery purchases would be about $347. For a family at the poverty about $86 for every Utahan. line, the tax paid on food is equivalent to about a week’s wages. Were it not for the tax, the family could buy an additional 3.5 weeks’ worth of groceries.

Possible Side Effects of removing Food Tax: “It's the old tax catch-22: governments need tax dollars to run, but nobody wants to pay” http://www.newwest.net/index.php/city/article/4447/C104/L104

To offset the loss of revenue: • State programs could be cut which could leave some low-income individuals worse off if social welfare programs are cut • Raise the sales tax on some non- food items: How do you decide which items to tax instead?

Making Up For Eliminating • In order for tax credits to work at its Food Tax If there is a problem.. full potential, it should: • Offer rebates to lower income households • be available to all poor and near-poor individuals and families who are • By eliminating or reducing food tax, states exposed to the tax are swayed to allocate the lost taxes elsewhere. This becomes controversial • be large enough to offset the sales tax because it can in fact hurt lower income on a family’s grocery purchases. households as well as move the tax to • NONE of the seven states now another facet which inevitably makes it administering sales tax credits or appear as though no tax cut has been rebates meet these two tests. This provided. ideal program should be revamped and adjusted to fit these or similar qualifications.

3 Side Effects and Interest Group Conflicts… • The most commonly suggested is a • The House's proposal (HB109) would refundable food- for low-income cost the state $167 million in consumers. Credits, however, do little or nothing to improve the growth of sales tax revenues (about 70 percent of revenue over time. This brings another projected general funds) and lead to complication-regressiveness. a $14 million increase in sales taxes • Ideally, a food-tax credit can provide to business. comparable benefits to low-income • The proposal has yet to address families at a significantly lower cost than a revenue loses to local governments food exemption. The main benefit from and Utah Transit Authority (a loss of this is high rewards at a lower cost. about $12 million/year).

However, there is Bi-Partisan Support Whether or not the doubts surrounding • [Food] “Tax cuts of this type tend to be politically sales tax removal are valid… possible popular since they can garner support from both sides of the political spectrum. Traditional ways to evaluate conservative scan embrace these policies since • Doubts typically have centered around three they involve tax cuts. Liberals can support the issues. policies since they are designed to increase • Can the state afford to exempt such a large income equality.” http://scholar.google.com/scholar?hl=en&lr=&q=cache:baE1GlY3zSoJ:www.holycross.edu/departments/economics/vmatheso/research/thesis.pdf+% share of consumption purchases - in either the 22differential+sales+tax%22 short or the long run - without raising its general • “Abolishing the tax isn’t a partisan cause. Former sales tax rate? Republican Congressman Merill Cook has • Do low- to moderate-income families & including supported the measure for years. He said the those who receive federal food stamps & reap a state’s tax system is in desperate need of reform. significant portion of the benefits from a food ‘Democrats and Republicans interested in social exemption? Or does the exemption largely benefit justice … ought to take [the sales tax on food] off the more expensive food items purchased by and quit whining about it,’ Cook said higher-income residents (the "caviar effect")? http://www.slweekly.com/editorial/2005/city_1_2005-08-25.cfm • Is the exemption worth the administrative difficulties it creates?

What the studies show… Continued… • Sales tax that exempts food tends to grow • Finally, all sales tax exemptions more rapidly without rate increases than a create potential problems for tax sales tax that includes food. As a result, the historical record suggests that rate administration. However, states can increases have been less frequent in minimize the difficulties of states exempting food than in states administering a food taxing food. by adopting categories and • An exemption is the most certain way to classifications already in use for the provide relief from the food tax to lower- federal food stamp program and by income households, without the barrier of application procedures. Plus, states can using uniform state and local tax use income taxes or other taxes to recoup bases. the taxes that higher-income households would have paid on food purchases.

4 Possible Ways to Evaluate… Continued Methods of Evaluating… • Look at all the administrative costs that would be needed to implement this bill and the proposed revenue losses. • Take polls or do studies one year • Create a proposed figure for the after to see if low-income individuals revenue that would be made up from are benefiting more than they were the slight increase in income tax. before when sales tax was in place on food. • Then perform a cost benefit analysis • Difficult because the numbers used are proposals not “real” numbers.

Summary on Food Tax Summary Continued… • Considering that all but 6 states, including Utah, have removed sales • Difficult because this is not been implemented yet. tax from food and more are talking about the possibility of removing it, and not the other way around • However, when we look at studies that have been preformed we do see positive obviously states are finding this results (in particular for lower income policy necessary and helpful. individuals) with regards to the income • This is a policy, that when polls have that they save. been preformed, show that the vast majority of individuals favor this policy.

Thank You For Your Dessert: a sidebar on Attention!!! “Twinkie Tax” Introduced in 1994 via NY Times op-ed piece by Yale professor, Kelly D. Brownell Proposed tax certain foods-soda, fat foods-or Do You Have Any specific high calorie/low nutrition foods Use tax to discourage unhealthy food choices, Questions? subsidize healthy food and fund nutrition programs Use to help curb obesity epidemic Penny tax on soda=$1.5 billion/year AK,TN,VA,WA created “fat taxes”

5 Problems with “Twinkie Tax” • “…deciding exactly which products are unhealthy, taxable foods is a tricky practical matter.” • “…money collected through fat taxes has typically not been earmarked for obesity- prevention programs or healthy food subsidies; instead they were often used to cover budget deficits.” • “…such a tax is inherently regressive, meaning it punishes poorer people who must spend much of their limited income

on food.” http://www.forbes.com/lifestyle/health/feeds/hscout/2006/01/11/hscout530229.html

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