There are good reasons to remove Utah's sales tax from food, a new study by the Utah Foundation says.
But there are also good reasons not to remove the tax, which is generally disliked by Utah residents, public opinion surveys show.Mike Christensen, foundation executive director, says his non-profit study group decided to take a new look at the hated tax because the 1999 Legislature will once again revisit the issue.
Already, several bills have been pre-filed that deal with the food tax issue. Rep. Ray Short, R-Holladay, wants to give a $20 per-person credit on state income taxes as a small offset to the food tax.
Sens. Scott Howell, D-Granite, and Michael Waddoups, R-Taylorsville, are co-sponsoring a bill that would give large income tax credits in 1999 and 2000 and in 2001 remove the food tax altogether.
While Gov. Mike Leavitt and GOP legislative leaders talked earlier this year about possibly giving some kind of income tax credit for food tax paid in 1999, now Leavitt and some leaders are saying state revenue growth is slowing and, considering other needs, 1999 may not be the time to do something about the food tax.
The food tax has been debated and rejected in the Legislature in other years, but because it brings in so much money to the state's general fund it's unlikely it could be removed all at once -- thus the phase-in proposal made by Howell and Waddoups.
Christensen says the tax -- 6.35 percent in Salt Lake County -- brings in $136 million to the state, $28 million to local governments, $6 million to the Utah Transit Authority and $1.3 million to the Utah Sports Authority.
A 1990 study by the State Tax Commission showed that if you make $20,000 a year you pay about $200 in food tax. If you make $40,000 a year you spend more on food and pay about $250 a year. If you make $90,000 a year you pay about $320 a year in food tax.
Christensen says arguments in favor of removing the tax include:
The tax is clearly regressive. Since everyone has to buy food, the tax affects poorer Utahns more than it does those well off financially. Eliminating the sales tax on food would reduce the regressivity of the sales tax overall because food purchases are such a large part of a poor family's expenditures.
Food is a basic necessity of life and should not be taxed at all.
Of the 45 states that have sales taxes, 28 exempt food completely from the tax and another does so partially. If most other states don't tax food, why should Utah?
Because sales taxes are no longer deductible from federal and state income taxes, even if those taxes should be raised to offset the food tax cut, taxpayers would still come out ahead -- they could take their income and property tax payments off of their income tax returns.
But, Christensen points out, there are good reasons to keep the food tax, as well. He notes:
Sales taxes make up the major revenue source for the state's general fund, out of which come payments for welfare, social services, health care and higher education -- most of which are programs aimed at helping the poor. So by paying the food tax, poor people are also helping pay for the state programs they use.
Pulling $136 million from the general fund is nearly a 10 percent reduction, and many programs aimed at the poor would suffer.
The sales tax also is a major revenue source for local cities and counties. Taking away those funds would harm local governments, police and fire protection.
Truly poor families already qualify for food stamps and the WIC (women, infants and children) program. And food purchases under those programs are already tax exempt.
Cutting the food tax could result in a higher sales tax rate on other products, such as clothes. Poor people need to buy clothes and other items as well, so may not be that much better off if the food tax is cut. Maybe cutting the general sales tax rate is a better way to help all Utahns, the poor included.
Part of the food tax is collected from out-of-state visitors. Why give them a tax break, especially if the tax burden is shifted to Utahns?
Finally, Christensen wonders if giving an income tax credit -- like both the Short and Howell/Waddoups' bills would do -- is the best way to help poorer Utahns. Many low-income citizens don't even pay income taxes and so probably wouldn't file a return to get their income tax credits, he concludes.