money With inflation spiking, will states and voters give grocery taxes a second look?
WASHINGTON – As inflation rose and prices increased, Republican Glenn Youngkin made a straightforward campaign promise during the 2021 Virginia governor's race: He'd eliminate the state's 2.5% grocery sales tax.
Virginia is one of 13 states that imposes a tax on groceries – and with consumer prices going up, Youngkin seized on the issue.
In a campaign video, he strolled through a grocery store, where price labels on milk, watermelon and cheese ticked up as he explained his plan. Eliminating Virginia’s grocery tax, he said in the ad, is “just common sense.”
Youngkin won, defeating Democrat Terry McAuliffe, in what was widely seen as a warning sign for Democrats heading into the 2022 midterm elections. While issues like education dominated that race, Republicans have increasingly used rising inflation and the increased costs of everyday purchases, in particular food, to attack Democrats and President Joe Biden as they hope retake control of Congress next year.
As historically high inflation draws people's attention to how much they pay for items, economists say grocery sales taxes may have added importance for voters. But will it propel states to undo their levies? It's unclear, though there have been recent attempts.
Youngkin isn't alone in taking on the tax, which tends to have a greater impact on people who make less money. Kansas Gov. Laura Kelly, a Democrat, wants to eliminate her state's grocery tax, and state lawmakers across the U.S. have made similar pitches.
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Kelly, who faces reelection next year, introduced the “Axe the Food Tax” bill in November to end the state's 6.5% sales tax on food, the second-highest sales tax rate for groceries in the country; Mississippi’s is highest, at 7%.
Eliminating the grocery sales tax in Kansas will save the average family $500 or more on their annual grocery bill, according to a press release from Kelly’s office.
Other states have debated policy changes to abolish the grocery sales tax. Lawmakers in Oklahoma and Mississippi have pushed in recent years for legislation that would abolish the tax.
Utah state Rep. Rosemary Lesser sponsored a bill in October to eliminate the state sales tax on groceries.
“Taxing grocery food is a stable source of revenue for the state, which is why some economists like it,” Lesser, a Democrat, said in a Deseret News op-ed. “But the basic unfairness of taxing a necessity like food makes the sales tax on food very unpopular.”
In Virginia, the idea resonated.
Public policy think tank Third Way held focus groups among Virginia swing voters who seriously considered or voted for Youngkin. The findings revealed voters thought Youngkin’s campaign was forward-looking and thought he was going to do something good for them by eliminating the grocery sales tax.
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Youngkin’s opponent, Terry McAuliffe, said during his campaign that he is also in favor of eliminating the grocery sales tax, but criticized Youngkin for not having a plan to replace lost revenue, Virginia Public Radio reported.
Inflation surged to a 39-year high in November, with prices for U.S. consumers jumping 6.8% compared with a year earlier, according to the Department of Labor.
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There's a chance that if inflation remains high, it could play a key role in 2022 congressional elections. Experts previously told USA TODAY that the party in power typically takes the blame during periods of high inflation.
Republicans have used inflation and increasing prices, including on groceries, as a line of attack on Democrats.
House Minority Leader Kevin McCarthy, R-Calif., has pointed to the costs of milk and fruit and other costs. The same goes for Rep. Liz Cheney, R-Wyo.; Sen. Marsha Blackburn, R-Tenn.; and Rep. Steve Scalise, R-La.
Last month, Republican lawmakers blasted Democrats for the increased costs of Thanksgiving foods.
"Just in time for the holidays, Democrats' failed policies have created a supply chain crisis and historic high inflation prices," Rep. Elise Stefanik, R-N.Y., tweeted using the hashtag, #ThanksgivingTax.
Sen. Rick Scott, R-Fla., who is leading GOP efforts to retake the Senate as chairman of the National Republican Senatorial Committee, told The Wall Street Journal that continued inflation and rising prices are "a gold mine" for Republicans.
Biden fired back, tweeting, "Imagine rooting for higher costs for American families just to score a few political points."
Eric Figueroa, a senior policy analyst for the Center on Budget and Policy Priorities, a nonpartisan research and policy institute, said grocery sales taxes may become more salient for voters because of high inflation rates.
“I think inflation plays a big role in bringing people’s attention to their bill at the grocery checkout line,” he said.
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Figueroa co-authored a report that found a sales tax on groceries has negative impacts for low-income families that often spend a large share of their income on food items.
He said the evidence is clear that the lower a family falls on the income scale, the more they end up paying in sales tax.
“It's a huge impact for those folks because they're sort of on the margin and living sometimes paycheck to paycheck,” he said.
However, he said the 13 states that impose a sales tax on groceries are in tough spots because eliminating the tax leaves states with less revenue to provide services that the same families need for assistance.
“What I would caution states if they're going to eliminate the grocery sales tax, they have to be very careful not to eliminate an ongoing source of revenue without some plan to make up for that revenue somewhere else,” he said.
Figueroa said he sees eliminating the grocery sales tax as a bipartisan issue.
“I think it’s a perennial issue that comes up over and over again in different campaign cycles,” he said.
For three states – Alabama, Mississippi and South Dakota – that tax groceries at the full state sales tax rate, Figueroa said legislatures should consider establishing a tax credit to help defray some of the costs of the grocery tax.
He added that if the tax credit was adjusted for inflation, it could be adjusted depending on whether prices increase or decrease.
“It's sort of the middle ground for states that aren't ready to get rid of the sales tax on groceries immediately or fully,” he said.
Economist Harry Kaiser co-authored a study that found grocery taxes increase the likelihood of food insecurity.
According to the study, a 1 percentage point increase in grocery taxes is associated with an 8 percent increase in the probability of being food insecure for low-income households.
Kaiser, a Gellert Family professor of applied economics and management at Cornell University, said that in addition to states imposing taxes on grocery items, local jurisdictions can impose their own rate even if the state does not tax groceries. One -third of all counties in the country tax grocery items, according to Kaiser.
Kaiser said he thinks the grocery sales tax debate will become more of a priority with inflation surging.
“Food inflation is just going through the roof right now,” he said. “With that, the food taxes go up because they’re based on the percent, not an absolute amount.”
However, Kaiser said many consumers don’t even know they’re getting taxed on grocery items. But as prices increase with inflation, he expects people will become more cognizant of the tax and will be more likely to contact their local politician over the policy.
“Salience is going to become stronger as prices go up and people recognize, ‘Hey, I can’t buy this item anymore because not only is it expensive, but all of a sudden when I look at the tax at the end of my grocery receipt, I see that’s doubled as well,’” he said.
Carl Davis, research director at the Institute on Taxation and Economic Policy, a nonpartisan think tank, said the problem with grocery sales tax is that it hits lower-income families harder because families have to spend most of what they earn on food.
“The lower your income, the higher the rate you face relative to your income,” he said.
Davis said many low-income families would see their bills fall if the grocery sales tax were repealed.
But because families that purchase groceries using SNAP benefits are exempt from the sales tax, he said abolishing it may not help those that are in the most dire economic circumstances.
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Davis explained that sales taxes on groceries are a meaningful part of the tax base in states that have it because groceries are a significant part of overall spending.
“It's one thing to say you want to repeal it outright or cut it significantly,” he said. "It's another to say what you're going to do when revenues fall in the wake of that.”
Davis said that if lawmakers are concerned about the economic circumstances of low and moderate income families, there are more targeted ways to get tax cuts specifically to those groups through earned income tax credits or child tax credits.
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He said a decision to permanently cut sales taxes is going to constrain state revenues over the long haul, and advised states to consider their revenue level and revenue stability if planning to abolish the tax.
“I don’t think a grocery tax cut is the worst idea in the world,” Davis said. “My question is, you have to think carefully about what the end goal is and is it the most efficient way to accomplish whatever angle you have in mind because there are other policy alternatives.”
This article originally appeared on USA TODAY: Inflation and food prices may draw attention to state grocery taxes
