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Despite some warnings of long-term fiscal risk, policymakers across the country continue to push big state tax cuts. While most are focused on income taxes, grocery taxes have also emerged as a target in 2022.
In fact, eight of the 13 states that tax groceries are considering cuts. Alabama, Kansas, Missouri, Oklahoma, Utah, and Virginia are debating full repeal, while Illinois might suspend its tax for one year and Mississippi could lower its tax rate.
Most states already exempt groceries from their sales tax in part to help low-income families—who spend a relatively large share of their earnings on food. Six of the 13 states that tax grocery food do so at a lower rate for the same reason.
But, while no one seems to love the grocery tax, Republican tax cut supporters typically prioritize income tax rate cuts, and Democratic grocery tax opponents are often hesitant to remove it if that risks budget cuts. As a result, grocery tax cuts might not make it to the end of the checkout line in many states this year.
States collect a lot of money from taxing groceries
Annually, grocery taxes generate roughly $500 million in Alabama, $450 million in Kansas, and $300 million in Oklahoma—about 2 to 3 percent of each state’s total tax revenue. Even states that tax groceries at lower rates still collect hundreds of millions of dollars from the tax.
As a result, the need to significantly increase another tax or cut spending to offset the revenue loss typically derails grocery tax cut proposals. But, because so many states are flush with cash at the moment, all of the current repeal proposals instead rely on current surpluses and predictions of future revenue growth.
Still, that may be a risky budget bet given how important these dollars are for education and other spending programs. And there are often other odd fiscal complications to consider. In Kansas, sales taxes fund the transportation budget, so the grocery tax also supports roads and bridges. In Utah, a complicated earmarking scheme that segregates income and sales tax revenue gets in the way of grocery tax cuts. In Alabama, Kansas, Missouri, Oklahoma, Utah, and Virginia, local governments also tax groceries, and local leaders—who are not enjoying the surpluses of their state counterparts—worry how their tax would work without a state counterpart.
In short, there are a lot of reasons (and interest groups) to say no to grocery tax cuts.
No one likes grocery taxes, but few politicians love grocery tax cuts
Even with today’s large budget surpluses, state policymakers can’t do everything and must set priorities. Most states that tax groceries are controlled by Republicans, and Republicans generally prioritize income tax cuts because they believe they boost economic growth. In contrast, the argument for cutting grocery taxes is rooted largely in assisting low-income families.
Utah passed a big income tax cut a few weeks ago and not a grocery tax cut. Some Mississippi legislators want to lower its grocery tax rate but others want to repeal the state’s individual income tax. Kansas’s Democratic governor is pushing to “axe the food tax” but the Republican-controlled legislature prefers income tax cuts. In Missouri, the Republican governor is focused on cutting income taxes instead of the grocery tax. Virginia’s Republican governor proposed ending the grocery tax but he’s also trying to sell a huge package of income tax cuts. And Kansas, Missouri, Oklahoma, and Utah all enacted significant income tax cuts last year.
This dynamic was made explicit recently in Idaho. The state, which had a huge surplus at the start of the year, recently debated increasing an income tax credit that residents use to partially offset grocery taxes from $100 to $120. One legislator mocked this $20 bump as “breadcrumbs” and asked why the state doesn’t just repeal the grocery tax. But another legislator reminded his colleague that the Republican-controlled legislature already used up about a third of the state’s surplus when they passed a $600 million income tax cut. And that came on the heels of a $383 million income tax cut in 2021. For comparison, ending the grocery tax would cost about $140 million annually.
No one likes grocery taxes. But if you ask Republicans if they want to cut income taxes or grocery taxes, they’ll choose the former. And if you ask Democrats if they prefer repealing the grocery tax or funding education, they’ll choose the latter.
As such, while one or two states may cut grocery taxes this year, most states will keep them for the foreseeable future. Killing the grocery tax may be a popular talking point but doing it is rarely at the top of legislative shopping lists.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
John Hanna/AP Photo