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As food prices soar, some states consider cutting taxes on groceries


One person buys groceries from Lincoln Market, Brooklyn Borough in New York City on March 10, 2022. This is in Prospect Lefferts Garden.

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New government inflation data shows prices are surging in one key area – food.

Some states have begun to look at ways they can help consumers reduce the tax burden by lowering their grocery prices.

But such moves may not be the most beneficial to those who such policies aim to help – low-income taxpayers, according to a new report from the Tax Foundation.

The report revealed that policies will only offer modest tax savings to middle-class taxpayers.

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An alternative solution could be to offer a $75 credit, that would help poor households reduce their tax liabilities by 31%, according to an independent nonprofit tax policy organization.  

Jared Walczak (Vice President of State Projects at Tax Foundation) stated that there are better ways to assist lower- and mid-income households than the exemption.

At the moment, thirteen states have imposed levies upon groceries.

Six states tax groceries at the normal sales tax rate. This includes Alabama, Mississippi, South Dakota and South Dakota. The other four states — Hawaii, Idaho, Kansas and Oklahoma — also provide a credit or rebate to low-income households.

In 13 states, groceries are included in the sales tax

State Rate of the ordinary Grocery Rate
Alabama 4% 4%
Arkansas 6.5% 0.125%
Hawaii 4% 4%
Idaho 6% 6%
Illinois 6.25% 1%
Kansas 6.5% 6.5%
Mississippi 7% 7%
Missouri 4.225% 1.225%
Oklahoma 4.5% 4.5%
South Dakota 4.5% 4.5%
Tennessee 7% 4%
Utah 4.85% 1.75%
Virginia 5.3% 2.5%
Source: Tax Foundation

The other six states — Arkansas, Illinois, Missouri, Tennessee, Utah and Virginia — tax groceries at reduced rates.

According to Walczak, the majority of these states proposed legislation this year to lower or eliminate their taxes. He said that the intense attention this year was all about high grocery prices.

Notably, many states have consideredThey have reduced their gas levies in response to record-high inflation. Some states, including Maryland and Georgia have succeeded in temporarily suspending their gas taxes.

The price of food has also increased, much like petrol.

According to recent consumer price index data, food prices rose 8.8% during the past twelve months. largest increase since 1981.

However, lowering grocery taxes could backfire for low-income consumers that the policy was meant to assist.

The move will be progressive so higher-earning people pay more sales tax. Low-income families rely heavily on benefits like the Supplemental Nutrition Assistance Program (SNAP) to help pay their food costs. It may also reduce their taxable intake, which may limit the amount they could save by a sales taxes exemption. These people don’t necessarily have a higher grocery bill than those who do not need them.

According to the Tax Foundation, therefore, lower or elimination of grocery taxes tends to be most beneficial to middle-income households.

According to nonprofit report, a better option would be to expand sales tax base to include consumer taxes and grocery taxes, as these are often used more by consumers with higher incomes.

A modest grocery credit (e.g. $75 per household) can help lower sales tax liabilities by 31% for the lowest income households, according to the study.

Walczak criticized proposed tax reductions on grocery sales, saying that it was not well targeted for low-income households. It is not as good as using the same amount for general relief. [sales tax]Credits and rate reduction