After a proposal to eliminate the food sales tax this year in the regular session of the Utah Legislature failed despite pleas from advocates, a national tax expert says eliminating the food sales tax the food sales tax would probably not help low-income residents. (Kristin Murphy, Deseret News)
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SALT LAKE CITY — After a proposal this year in the Utah Legislature to eliminate the sales tax on groceries fell through the session despite pleas from advocates, a national tax expert said removing the tax is unlikely to help low-income residents.
Utah is one of 13 states that still include groceries “at least partially” in their sales tax bases, noted Jared Walczak, vice president of state projects at the Tax Foundation in Washington. , DC
“These 13 states are right. The challenge with that, of course, is that it’s just not a fun thing to defend,” Walczak said.
Food taxes have emerged as a bigger issue over the past year due to inflation as everyone’s grocery bills have gone up,” he added, speaking at the the Utah Taxpayers Foundation’s 2022 Taxes Now Conference in Salt Lake City.
The Utah Grocery Tax
Although Governor Spencer Cox proposed a $160 million grocery tax credit in his budget recommendation this year, lawmakers opted instead for a general tax cut of $193 million, including $163 million dollars for a general reduction in the income tax rate for all Utahns, dropping Utah. income tax rate from 4.95% to 4.85%, plus a non-refundable income tax credit of $16 million and a $15 million extension of the tax credit for state for social security.
Some states, like Utah, tax at the “regular” 3% rate, some tax at reduced rates, and some include groceries in their tax base but offer credits to low-income residents, according to Walczak.
Despite the “understandable” desire to provide relief by removing groceries from the sales tax base, Walczak said, a study by the Tax Foundation found that it “doesn’t help those on the lowest incomes”.
People in the lowest income categories consume most of their income, he noted. “And they’re going to consume a variety of things, but a really big item for a lot of people will be groceries.”
According to the study, the bottom-third income bracket nationally saves only $2.50 per person on average each year, as the sales tax on groceries is eliminated or lowered in states that have done it.
This is partly because in the Supplemental Nutrition Assistance Program (SNAP) and Women, Infants and Children (WIC) programs – which many low-income families use to buy groceries – the taxes of sale do not apply.
Prepared foods, such as frozen dinners, are also not considered groceries in any state. This means that in states that have eliminated the grocery tax rate, prepared foods are still taxed. Walczak said that for low-income families — for whom time is of significant value — the slight additional cost of buying pre-prepared food “weighs more” than groceries that aren’t taxed.
States can provide relief by implementing a lower general sales tax rate, or a higher rate with groceries off the tax base, Walczak noted.
“We found that nationally it actually helped lower income households … to have groceries in the base,” he said.
The study found that the lowest income households are subject to a 9% higher sales tax with a tax exemption on groceries compared to a proportional reduction in the general tax rate.
Eliminating the sales tax on groceries has benefited middle-income people the most, according to Walczak. These people are more likely to buy more high-end groceries and see more of the effects of not being taxed on those foods, he said.
Lawmakers remain concerned about inflation
At Wednesday’s conference, the Governor, Senate Speaker Stuart Adams, R-Layton, House Speaker Brad Wilson, R-Kaysville and others expressed concern over inflation and a possible recession. .
“One of the levers we can pull…to reduce the tax burden on every family in Utah so they can keep more of their money, choose to spend it how they want…to help make deal with some of that inflation,” Wilson said.
Although the Legislature balanced its “largest budget in state history” this year, he said, the state’s reliance on sales tax to fund everything other than education creates a challenge.
“It’s really difficult to take 33% of state revenue and pay for all the necessary and essential government functions, including transportation, that kind of stuff,” he said, calling the problem a “block”. important road for Utah in the near future and I’m definitely thinking long term,” he said.