HB 80 to offset sales tax on food is good but not good enough

published Wednesday, February 14, 2007

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Legislative Committee passes a bill to offset the sales tax on food: Good but not good enough. On February 6th, the House Revenue and Taxation Committee passed HB81 which would raise the grocery tax credit to $50 for non-seniors and to $70 for senior citizens. It is also refundable meaning that people who do not make enough money to file an income tax return can get the credit. It has a price tag of $48 million--which means it may take money from other essential priorities like public schools and Medicaid. We preferred the more targeted approach in Governor Otter's proposal, HB80. It did not gain the committee's approval but there is speculation that it may come up again. We still think it is the best proposal to address the inequities in the sales tax.

Why a more targeted Grocery Tax Credit is better. It’s the right thing to do. United Vision for Idaho fought for many years to get the Legislature to adopt a Working Families Credit modeled on the federal Earned Income Tax Credit (EITC). Robert Reich, Bill Clinton’s Secretary of Labor, calls the EITC the best anti-poverty program we have (other than Social Security) with the worst name. This credit can provide families with up to $4,000 annually to supplement their income. At the state level we had proposed a credit of 10% of the federal or up to $400.

A reform of the grocery tax credit under the proposal advanced by Governor Butch Otter in HB80 will do much the same thing. Governor Otter is proposing that Idaho’s grocery tax credit be expanded and targeted to lower- and middle-income families. About a fifth of Idahoans, those with the lowest incomes, would get $90 per family member. Another third will get between $90 and $20 per family member, the credit declining as income increases. Higher-income families will receive no credit. This proposal is the right option for Idaho in 2007 for several reasons.

It’s fair. Last August, Idaho permanently raised its sales tax rate from 5 to 6 cents. The sales tax rate falls much more heavily on lower- and middle-income families than on high-income families. Increasing and targeting the grocery credit helps correct this inequity.

It’s affordable. The Governor’s proposal requires only $22 million in “new money.” The credit costs $48 million, but $26 million that is now being spent on the current $20 grocery credit for higher-income Idahoans would be reallocated to the new grocery credit.

Why not just take the sales tax off food? Much of the benefit of removing the sales tax from food goes to people who don’t need the benefit. It is not immoral to tax food so much as it is immoral to take food out of the mouths of people who cannot afford it. A bigger sales tax break should go to those families who have trouble making ends meet month to month. Removing the sales tax from food is expensive. We all have many priorities: improved schools, colleges and universities; expanded health care coverage; improved transportation. Removing more than $180 million from the state’s budget will hurt the funding of these other priorities.

Could the Governor’s proposal be improved? Of course. The value of the credit should be indexed so that it keeps pace with inflation and the cost of living each year. Families of four receive no credit if their income is more than about $50,000, hardly a high income these days. The credit could phase out more slowly, although this means the cost of the credit would go up. The biggest problem is that families who receive food stamps are ineligible for the credit. Families receiving food stamps are exactly those families struggling hardest to make ends meet. Furthermore, excluding food stamp recipients creates an administrative nightmare. This is not a perfect proposal but it goes a long way in the right direction to correcting the regressiveness of the sales tax.