November 20, 2005

Candor in Utah: Debating the Food Tax

The ongoing debate over how (if at all) to cut Utah's sales tax on groceries continues. The Deseret News has some interesting polling data evaluating various reform ideas.

Take these results for what they're worth, but here's what they find RE the sales tax on food:
1) Most Utahns want to eliminate the sales tax on food. But of those who support it, most want to see the revenue loss made up with a rate increase on non-food items.
2) 18 percent of Utahns would rather see a sales tax credit for groceries (about which you can read more here) than a complete exemption for food.

One can reasonably ask whether lawmakers' choices on this issue should be guided by what people think, since this is a case where the views of regular folks (who don't want to tax "necessities") tend to be diametrically opposed to the views of economists (who think that the best recipe for tax reform is a broad base and a lower rate, not a narrow base and a high rate).

This week's edition of the Inside Utah podcast shows that (some) lawmakers and advocates on both sides of the issue are thinking things through pretty thoroughly-- even if they're starting from pretty dubious premises. Senate President John Valentine wants to exempt food, but pooh-poohs the idea that the state should make up the revenue through increases in the sales tax rate or in any other tax. So how would he make up the revenue? "Shrink government," he says:
"We would basically have less government. We’d have less health and human services, probably earlier release from prisons, maybe less road building. Maybe some park closures. Maybe less funding of higher education. All of those things would be on the table, because those are all functions of state government."
I'll say this for John Valentine: at least he's putting his cards on the table-- none of the sort of duplicity here that you see from the Congressional leadership in Washington. His candor in admitting that there are two sides to the tax and spending ledger is refreshingly honest. None of that "free lunch" business from John Valentine.

Each of the other guests on the program offers interesting insights--many of them wrong.
House Minority leader Ralph Becker clearly gets that unaffordable tax cuts often turn out to be "tax shifts" to someone else, likening the proposed sales tax cut to "squeezing a balloon and having it come out somewhere else." But he doesn't seem to mind funding this particular tax cut by hiking the rate on non-food items, and calls this "fair." His main concern seems to be that the state finds some way-- any way-- of making this plan revenue neutral.

Lane Beatty, president of the Salt Lake Chamber of Commerce, seems sympathetic to the notion of exempting food, noting that the food tax "affects people in their ability to survive who are at lower income levels." (Of course, if that's his real concern, than shifting away from the food tax and increasing the sales tax rate on everything else seems like a pretty counterintuitive solution!) But he is also is leery of the potential impact on public services, noting that there "from an education standpoint, from a roads standpoint, from an economic development standpoint, there are great needs" that the state hasn't yet met. Hey legislature-- when the local Chamber tells you infrastructure needs aren't being met, you should maybe listen.

Perhaps most distressing are the comments from Amberlie Phillips of the Utah Food Bank, who you really hope would see past the "free lunch" tax cut argument, but clearly doesn't. For Amberlie, exempting food would be "almost like getting a 6 percent raise."

Which brings us back to the topic of why public opinion maybe shouldn't guide this debate. It's just asking too much for the public to evaluate tax proposals and spending needs side by side. How many Utahns (or residents of any state) can accurately assess whether Utah really has a couple hundred million to blow on tax cuts without forcing cutbacks in public services? In the end, balancing the books (and ensuring that the tax system is designed as intelligently as possible) is a job that should be done by experts. If we can't leave this job to our elected officials, why have elected officials at all?


At 11:43 AM, Anonymous click here to see tornado pictures said...

The government that governs least governs best.

Is that true?

At 2:05 PM, Anonymous Anonymous said...

What do you think of this discussion at: ??

At 2:05 AM, Blogger UtahOwl said...

As a Utahn who has attended several meetings of the Utah Tax Reform Task Force and spent some effort understanding a bit about the current tax structure in Utah, I'd like to impart a few facts that weren't brought out in the discussion Matt G heard. First, the Tax Reform proposals being considered ALSO contain about 2 million in new business-related tax cuts. As it happens, 2 million is the cost of removing the tax on grocery food. Since Utah already ranks among the bottom 3 in business-related taxes, I don't see why we can't take out these additional tax cuts for business & use the revenue instead to compensate for the food tax revenue loss. It is also true that Utah ranks fifth in the country for the number of our citizens suffering "food insecurity" - a euphemism that means they don't know where their next meal is coming from a lot of the time. Since the US Congress is likely to go ahead with cuts to Food Stamp and Community Block Grant Programs (which fund local Food Banks),I think it's time to remove the tax on unprepared food.
BTW, would someone like to tackle the subject of why we, the richest nation in the world, can't feed our citizens adequately?

At 10:07 AM, Blogger Andrew Oh-Willeke said...

I'd dispute your claim about what tax experts feel about taxes on groceries. Tax experts know that the sales tax is a regressive tax and that removing groceries from the tax base (as the vast majority of states with sales taxes do) makes sales taxes less regressive.

At 10:36 AM, Blogger Matt G said...

What you're saying is absolutely true-- and is also quite consistent with the observation that exempting food narrows the base in a potentially harmful way.
No one disputes what you're saying, or what I'm saying. Progressives differ on this issue for strategic reasons specific to their state at a particular time.
Sometimes adequacy matters more than equity (as was true when most progressives opposed a ballot iniative exempting food in Arkansas a few years back). Sometimes equity matters more (as is arguably true today in Tennessee, where progressive are making food tax repeal a central plank in their tax reform platform. I think the main difference has to do with how high the sales tax rates are to begin with, and whether they're likely to increase as a result of exempting food. Tennessee's sales tax rates really can't get much higher (I hope), so exempting food will likely just reduce the importance of the sales tax. In Arkansas (and in Utah, which is what I was discussing to begin with here), there's a real danger that the benefits of exempting food could be offset completely by rising rates. No one wins under this scenario.

UtahOwl, both of the problems you identify are bad things that ought to be fixed. But neither thing is a compelling reason to exempt food.


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