Raising Taxes on Groceries Being Discussed
By David Ferguson
I was shocked when I read the Tax Reform and Relief Legislative Task Force of the Arkansas General Assembly will be discussing the possibility of raising the sales tax rate on groceries with a supposed trade-off of an income tax break for some. The task force issued a 180-page interim report in December. According to the Democrat-Gazette: “Among the options mentioned is repealing the state’s partial sales tax exemption on groceries and then creating a deduction or refundable credit for lower-income Arkansans on those taxes paid.”[i]
After writing tax legislation for the Arkansas legislature for over three decades little surprises me about tax proposals, but this did. Before I explain why, let me first explain why this trade off plan is bad.
Under this ridiculous idea of trading higher grocery taxes for income tax “relief”:
(A) Most Arkansans would pay higher grocery taxes and get NOTHING in return. The income tax trade-off would only apply to low income taxpayers.
(B) Giving an income tax DEDUCTION to lower income Arkansans in exchange for higher grocery taxes would not be a fair exchange because: (1) A deduction only gives back part of the taxpayer’s expenditure; (2) Lower income Arkansans who pay income tax are likely to take a standard deduction instead of itemizing; (3) The deduction offered would be an arbitrary number having nothing to do with what the person actually spent in grocery taxes, because you can’t expect an individual to keep all their grocery receipts for a year in order to apply for a deduction.
(C) If the income tax trade off was to be in the form of an INCOME TAX CREDIT OR REFUND, it still would be based on some arbitrary number because of the difficulty of keeping up with receipts that quickly fade anyway. There would be no guarantee the low-income taxpayer would get back as much as he paid in grocery taxes.
(D) Even if there was way to guarantee that all low-income taxpayers would get back as much in income tax as they paid in new grocery taxes, the plan borrows money from low income taxpayers (taxing groceries immediately and returning some of the money months or a year later).
Plus, as I said previously, most Arkansans would get nothing but higher taxes which the state would use to grow government.
WHAT WAS IT ABOUT THIS THAT SHOCKED ME?
It shocked me because common sense should tell even tax and spend politicians – the grocery tax increase should be off the table.
- The people who will be hurt most by grocery taxes are the ones who can least afford it. The people most hurt by the grocery tax are those living on a tight budget. The tax hurts the poor the most. It hurts our seniors living on fixed incomes. It hurts anyone who is living pay check to pay check or struggling to get out of debt. If you are struggling to make ends meet you can avoid buying luxury items but you can’t avoid the cost of food.
- Grocery taxes are despised across the country. Most states completely exempt groceries from both state and local sales tax. Some states exempt groceries from the state tax but allow local government to collect a tax. Arkansas only reduced the state tax on groceries, and also allows local government to collect a tax on groceries. Only a handful of states fully tax groceries.Arkansas’ tax treatment of groceries is already poor policy compared to the rest of the country. Do you think fully taxing groceries will make Arkansas an attractive state to move to? [You may want to look at this map from the Tax Foundation showing whether a state taxes groceries.]
- I know firsthand how hard legislators fought to reduce the tax on groceries. Just to reduce the tax on groceries in Arkansas has been a difficult fight spanning decades. For at least 10 years, from 1989 to 1999, former state Senator Bud Canada of Hot Springs tried to pass legislation to eliminate all sales tax on groceries. He tried plans to phase in the elimination of the tax over several years. He also tried plans to swap the sales tax on groceries with an increase in the general sales tax rate on other items. In 1997 and 1999 , Senator Canada managed to pass his grocery exemption bills in the Arkansas Senate but the bills failed in the House of Representatives.Senator Canada was never able to pass his legislation. But his dedication inspired a Senate colleague to take up the fight after Canada left the legislature. The person who carried on the fight was Governor Mike Beebe who served for eight years beginning in 2007.
Governor Beebe did not try to completely eliminate the sales tax on groceries, instead he worked to reduce the tax imposed by the state. The biggest opponents to eliminating the grocery tax were cities and counties. The local governments opposed anything that would cause them to lose any tax revenue. Beebe avoided this opposition by allowing local taxes on groceries to remain.
During Governor Beebe’s eight years in office he pushed legislation to reduce the state grocery tax rate in phases. Beebe removed most of the state tax on groceries but the state still collects some.
WHAT IS THE TAX RATE ON GROCERIES?
The state sales tax rate is 6.5%. The reduced state rate on groceries is 1.5% How much local tax you pay on groceries depends on the taxes adopted in your county and city.
The state rate on groceries is expected to drop from 1.5% to 0.125% in 2019. The remaining 0.125% is something that should have been dropped years ago. This is the 1/8ths percent sales tax imposed in the Arkansas Constitution. This tax is called a conservation tax and the money is divided: 45% to the Game Protection Fund; 45% to the Department of Parks and Tourism Fund Account; 9% to the Department of Heritage Fund Account; and 1% to the Keep Arkansas Beautiful Fund Account.
I don’t know about you, but I think Game and Fish and the other programs could forgo applying the conservation tax to groceries. An amendment to the constitution may be necessary to keep from also effecting the local tax. Why the legislature hasn’t already done this is beyond me.
HIGH TAX STATE
Arkansas is a high tax state and Arkansans need tax relief. Arkansas’ taxes are so bad the state now depends on attracting new business with special tax breaks that other Arkansas businesses don’t get.
Arkansans don’t need more tax on groceries – they need less. Arkansas needs to lower the overall tax burden to make Arkansas more attractive.
If you think the task force is about lowering the overall tax burden, you haven’t been paying attention. It’s charge is to realign which taxes go up and which go down. Supposedly the mission is to “modernize” the tax system and to make it fairer. In other words, the task force’s job is to pick winners and losers among taxpayers. Yes, some taxpayers will end up with some tax relief, and that will be highly publicized. Meanwhile other taxpayers will end up with a higher tax burden but that won’t be talked about.
There has already been a test run for increasing grocery taxes. In the law that gives an income tax exemption for military retirement pay, there is a sales tax increase on soft drinks and candy. Instead of taxing the items at the rate for groceries they will now be taxed at the state’s full 6.5% rate. (Oh, by the way, while you thought the military retirement pay bill was a tax relief bill it included enough in new taxes in the bill to raise an additional $9 million.)
Your voice counts. Do you want higher grocery taxes? The same amount of tax on groceries? Less tax on groceries?
David Ferguson is a former Director of Arkansas’ Bureau of Legislative Research, having a thirty-two-year career as an attorney for the Arkansas legislature. After retirement from state service his primary focus has been beef cattle farming. He is also a former officer of Conduit for Action.
[i] Tax taskforce plans long look at state levies, with eye to changes, Arkansas Democrat-Gazette, 01/03/2017