Opinion: IFF’s Call to Eliminate Grocery Tax Demonstrates Responsible Fiscal Policy

Opinion: IFF’s Call to Eliminate Grocery Tax Demonstrates Responsible Fiscal Policy

by
Steve Ackerman
October 25, 2014
Steve Ackerman
October 25, 2014

IFF is renewing its call for eliminating the grocery tax.  I believe this is responsible tax policy, given the lackluster wage growth we’ve seen in Idaho the past several years.  While recent reporting shows Idaho’s personal income grew faster than any other state – hitting $36,146 in 2013 – Idaho still ranks No. 47 out of 50.  Worse still, median income was $27,932 in 2013.  That means 50 percent of adults were earning less than $27,932.  The fact that the other 50 percent were earning more than $27,932 makes little difference, given the small amount.

One of the flaws with the argument against eliminating the grocery tax is that the state will lose revenue.  The problem is that studies have shown that when you cut taxes you increase revenue to the government.  This was proven with the reduction in income tax rates under presidents Coolidge, Kennedy, Reagan, and GW Bush.  In every case, revenue went up.  The deficits that followed were due to an increase in spending that squandered much of the savings to the federal government.  I believe the legislature has shown the prudence to not let that happen.

Consider evidence presented by Dr. Daniel Mitchell, Senior Fellow at the CATO Institute and a former fellow at the Heritage Foundation:

  • When tax rates were cut in the 1920s (from more than 70 percent to less than 25 percent) revenues rose from $719 million in 1921 to $1.164 billion by 1928
  • Tax revenues again went up from 1961 to 1968 -- $94 to $153 billion – when the top tax rate was cut from more than 90 percent  to 70 percent
  • Under the Reagan tax cuts of the 1980s, revenues from lower tax rates rose some 99.4 percent
  • Federal tax collection rose by 11.8 percent (going from $2.15 to $2.41 Trillion between 2005 and 2006) due to the tax cuts by GW Bush

 

Perhaps more importantly, Idaho continues to experience stagnant incomes.  As a teacher of economics, it is all well and good to talk about the unemployment rate (a weak indicator) or Idaho's GDP (as an indicator of economic growth). But, if people don't see an increase in their incomes, that translates to no improvement in their standard of living.  A cut of this tax would at least give the sense that people are better off.

Finally, more money in people's pockets means more spending.  Given Idaho has such a large percentage of its economy tied up in small businesses; increasing disposable income would be beneficial to economic growth.  Thank you.

Steve Ackerman is a political and economic analyst with more than 15 years of college and university teaching experience including at Boise State University, College of Idaho, Northwood University, the University of California and California State campuses, and others. He is a member of IFF's Board of Scholars.

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