Whenever the debate surrounding the sales tax on food reignites, hyperbole and emotion sometimes get in the way of facts and data. We would like to explain a few facts that seem to always be missing from the conversation.
Since 2008, purchases of unprepared food or groceries have been taxed at a reduced state tax rate of 1.75% instead of the full state rate, which is currently at 4.85%. There is another 1.25% local sales tax on food for a total of 3%, however we are only discussing the 1.75% state sales tax rate, as no one has yet suggested eliminating all state and local sales tax on food.
The first fact — which is surprising to most — is that the current lower sales tax on food overwhelmingly benefits the wealthy more than the poor. The most common knee jerk-reaction to calls for lowering or eliminating the sales tax on food is that it helps the poor and those that are struggling financially. But the current 3.1% exemption benefits the wealthy most and cutting or eliminating the sales tax on food will hand most of that benefit to them.
As an example, under the current reduced rate, if a wealthy family spends $150 on groceries for a week’s supply, they bank a tax savings of approximately $4.65 (paying a tax rate of 1.75% versus 4.85%). Using the same math, if a low-income family spends $45 on groceries for the same week, they only bank a tax savings of approximately $1.39. So, the wealthy buyer banks a tax break that is 334% higher or over three times as high. If the current 1.75% state sales tax rate was eliminated, the same would hold true. The wealthy family in this case would bank a tax savings of $2.62 versus the low-income family at 79 cents.
Second, recipients of SNAP or WIC benefits do not pay any sales tax on grocery purchases when they use those benefits. So, any cut or elimination of the sales tax rate on food would not help these citizens since they don’t pay it in the first place. For the working poor who make too much money to qualify for SNAP or WIC, a far better solution is a grocery tax credit that can be given to completely offset the tax they pay, or even better, an exemption card could be issued to them so they could benefit right at the cash register by not having to pay sales tax on their groceries. This would ensure that the wealthy continue to pay the current sales tax on their groceries and is much better from a tax policy perspective.
Third, when it comes to funding government, tax revenue stability matters. The most common phrase in good tax policy is broaden the base and lower the rate. A broad base means as many items or people paying taxes provides a larger or “broader” tax base and allows for a lower tax rate. Along with that, sales tax on food is the most stable source of tax revenue for government entities because those necessary items are purchased, no matter what economic circumstance we find ourselves in.
We just went through the perfect example of this during COVID. Sales tax revenue has been absolutely rock solid as purchases remained steady even during lockdowns. We realize there are some who feel that taxing food is unfair. However, we think it is important to note that the sales tax on food is often some of the only tax that some pay into the system, and it is fair to ask all that benefit from government services to pay something, even if it is only the “widow’s mite.”
It is also a slippery slope to walk down by saying we shouldn’t tax “necessities” like food. If that is the case, then why stop there? Why not other items we need to function — clothing, transportation, toothbrushes, soap, laundry detergent. The list goes on and on, and soon we are left with little to no tax base left to generate the needed revenue to fund the programs many rely on. We believe an elimination of the sales tax on food will lead to conversations about raising the sales tax rate on everything we purchase in just a few years.
A reduction or elimination of the sales tax on food will overwhelmingly benefit the wealthy the most, those on SNAP or WIC do not pay the tax, and the sales tax on food is the most stable revenue source government entities rely on, which helps keep overall tax rates lower. As discussion around the sales tax on food continues, we need to remember and acknowledge these important facts.
Rusty Cannon is president of the Utah Taxpayers Association.