November 03, 2005

Utah Lawmaker: Ax the Food Tax

The tax reform ideas never stop coming in Utah. The Deseret News reports today that House Republican leaders have hatched a plan to eliminate the sales tax on groceries and make up (most of) the revenue by increasing the tax rate.
There are three perspective from which you can evaluate this idea:
1) Tax fairness: Thumbs up. Taxing food hits the poor hardest. Hiking the rate on everything else will hurt them, but they won't lose as much as they gain. (Unless you do what North Carolina has done, which is to increase the tax rate on non-food items so much that low-income earners actually end up worse off!)
2) Ivory tower: Thumbs down. Tax reform 101 says "broaden the base, lower the rate." This plan does exactly the opposite, applying a higher rate to a narrower tax base. This means the sales tax treats consumers very differently based solely on what they choose to buy. Imagine two Utahns with the same salary. Sam likes to cook, and Harry always eats out. Groceries are exempt, so Sam pays no sales tax. Restaurants are taxable, so Harry pays a lot. It's hard to justify this basic difference, but that's what the Utah plan would do.
3) Paranoia: Thumbs down. From the tin-foil-hat perspective, one might imagine that the reason these guys are pushing this plan is not because they care about poor people, or even because exempting food polls so well, but because they know that in the longer term, people will get mad about the higher sales tax rate. Salt Lake City residents may grumble now about a 6.6 percent total sales tax rate, but wait until they find out they're paying 7.2 percent on their non-food purchases. The higher the tax rate, the more people are aware of the sales tax and the madder they get about their taxes in general-- which plays very nicely into the hands of anti-tax advocates.

From the Deseret News article, it sounds like progressives in the state are leaning towards perspective #1. Beehive Donkey gives this plan a thumbs up too. It's a tough call. No doubt, exempting groceries is a progressive move in itself, and lots of progressive groups have staked their tax plans to this idea. See Tennessee and New Mexico. But if the cuts prove unaffordable and the state ends up hiking the rate, it's hard to be sure that low-income consumers are better off in the long run. You can make a case that this is what's happened in North Carolina, Virginia and, yes, New Mexico.

2 Comments:

At 1:24 AM, Anonymous Anonymous said...

someone who is eating out is already paying vastly higher food costs, tax differences won't matter much in that lifestyle choice

 
At 10:12 AM, Anonymous Anonymous said...

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