States Weigh Grocery Tax Pause as Inflation Rises, But That Might Not Bring Much Relief

Several states are taking steps to temporarily roll back taxes on food in hopes of providing relief to Americans who are experiencing soaring grocery prices.

The government announced on Tuesday that consumer prices hit a new four-decade high in March, with inflation hitting 8.5% – the fastest pace since 1981. One of the main contributors to the surge in the he inflation was food prices, which rose 8.8% in March. of the previous year.

INFLATION INCREASES 8.5% IN MARCH, REACHING NEW HIGH IN 40 YEARS

Prices for basic necessities have jumped over the past year, notably for cereals and bakery products (10%), poultry, fish and meat (13.8%), fruits and vegetables fresh (8.1%) and eggs (11.2%).

Now, in order to ease the financial strain on American families, there is growing pressure in a handful of the 13 states that tax groceries to suspend those levies.

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Meat and fish at Diablo Foods, a local supermarket in Lafayette, California on May 25, 2021. (Smith Collection/Gado/Getty Images/Getty Images)

Tennessee Governor Bill Lee, a Republican, announced a 30-day suspension of the 4% tax on local and state grocery sales in late March to ease some financial burdens on families.

“As Americans see their cost of living soar amid historic inflation, suspending the food tax is the most effective way to provide direct relief to every Tennessee,” Lee said in a statement. “Our state has the ability to put money back in the pockets of hard-working Tennesseans.”

There’s a similar measure in Oklahoma that would suspend the state’s 4.5% tax on groceries for two years, though it wouldn’t stop municipalities or counties from adding their own sales tax. . Gov. Kevin Stitt, a Republican, expressed support for the bill, which is currently being considered by the Oklahoma Senate Appropriations Committee.

Alabama lawmakers also pushed to temporarily suspend the state’s 4% tax on groceries with a bill introduced in mid-March, though the measure did not pass. the legislature this week.

However, experts warn that suspending grocery tax collection may ultimately bring little relief to struggling American households.

The Tax Foundation, a nonpartisan group that tends to advocate for lower taxes, said in an analysis published this week that exempting groceries from the national sales tax reduces “economic efficiency without achieving its objective of improving tax progressivity”. In other words – although it may seem counterintuitive – the lowest income households actually see a 9% increase in sales tax in a state that does not exempt groceries from its tax. sales tax, according to the Tax Foundation.

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People shop at a supermarket in Glendale, California on January 12, 2022. (Robyn Beck/AFP via Getty Images/Getty Images)

“The idea that a grocery exemption creates a fairer sales tax base often goes unchallenged, leaving policymakers only to grapple with the trade-off between fairness and efficiency,” wrote Tax Foundation economist Jared Walczak. , in the analysis. “But the assumption is unwarranted.”

At best, suspending taxes on groceries would offer only modest savings to middle-class families, according to the analysis. This is because grocery taxes are designed to be progressive, with the goal that high earners pay a higher rate of sales tax. But many low-income households rely on government programs like the Supplemental Nutrition Assistance Program, or SNAP, to pay for groceries; eliminating the sales tax could actually reduce their taxable consumption of food, thereby limiting the amount they could save through a temporary break.

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Also, low-income Americans don’t necessarily spend more of their income on groceries compared to other necessities like gas or rent. If these families spend moderately more on groceries as a share of income, but “substantially” more on other household goods, they might be worse off under a tax code that exempts groceries.

“The result is that a policy designed to inject sales tax progressivity has the opposite effect, increasing the tax liability of lower-income households, with most of the savings concentrated in households middle-income earners who can be better supported in other ways,” Walzak said. mentioned.

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