One of the weakest arguments against repealing the grocery tax is that because there is a “food tax credit” on your income taxes, it would be redistribution to leave the credit alone while removing the sales tax on groceries. A few squishy legislators insist on removing both the tax and the credit at the same time.
How bizarre it is to see some purported “conservatives” argue that to repeal a sales tax, you must also raise income taxes by removing a tax credit. What, exactly, is conservative about supporting a tax cut while also requiring a tax increase?
Let’s keep it simple. Taxing groceries is regressive and unseemly for a supposedly conservative state. And separately, income tax credits, by any name, are better left in place than forcing Idahoans to pay higher taxes.
Some history
Let’s be clear. The tax credit in question existed for decades, unattached in statutes to grocery taxes. Only when some legislators started pushing hard to remove the sales tax on groceries did other “big-government” legislators react. They began by dubbing the tax credit a “food tax credit” and then increased the credit amount to stave off what would have been a much larger sales tax cut for Idahoans.
Here is a timeline (special thanks to the Legislative Research Library of the Legislative Services Office) on the income tax credit many grocery tax advocates associate with grocery tax policy:
Misdirection and manipulation
Idaho is a laggard. Forty-six other states either don’t tax groceries at all or do so at a reduced rate (Utah). Besides Idaho, only Hawaii, South Dakota, and Mississippi fully tax groceries. There is no justification for a “red state” to keep taxing groceries. We mustn’t be fooled by some big spenders’ misdirection in renaming an income tax credit to a “food tax credit.”
In its inception, and largely in its practice, the income tax credit many associate with the grocery sales tax was not attached to grocery purchases or grocery taxes at all. Since 2008, the tax credit was increased and renamed in a coordinated effort to keep the tax on groceries in Idaho. The tax-and-credit system, as it exists, is clunky, unfair, and hurts Idaho families.
No conservative legislator should argue that dropping the sales tax from groceries requires us to also raise taxes on income (by removing a tax credit, whatever its name).
Here’s an idea: as we abolish the grocery tax, perhaps the statutes should drop the word “food” from the food tax credit and return it to normalcy, so to speak. But we shouldn’t feel obligated to repeal the credit at the same time we repeal the tax; it wouldn’t make sense before 2008, and it doesn’t make sense now.
Let’s work hard to repeal the grocery tax. Good conservatives should not be fooled by an income tax credit getting in the way of repealing a sales tax. We at the IFF oppose removing the tax credit because, simply put, we are not fans of raising income taxes on families.
A side story on the totals
Some opponents of any sort of grocery tax repeal claim the income tax credit offsets what Idahoans pay in sales taxes on groceries, so cutting or not cutting them is all a wash. Again, this is misdirection and incorrect. The income tax credit for “food” generates savings for Idahoans but far short of what is collected in sales taxes on groceries overall.
The difference is about $200 million. So, repealing both the sales tax on groceries and the income tax credit would change the “win” for Idahoans from $406 million in tax cuts to roughly half that amount, around $200 million in cuts (estimates from IFF and the Idaho Legislative Services Office).
Repealing the income tax credit is a separate issue. It would only be palatable along with a commensurate reduction in income tax rates so that no families are left holding the bag with higher income taxes in the end.
A final note
Some legislators insist on linking the grocery tax repeal with the tax credit repeal because doing so would likely cause the entire repeal bill to fail in the Legislature. Here’s why: If we tried to repeal both the sales tax and the tax credit together, the families most in need would see an overall tax increase, and that’s a bill stopper.
Some families get more from the tax credit than they pay in grocery sales taxes — they would be hurt by repealing both. Other families pay more in sales taxes than they get from the credit — they would be helped by repealing both. And, get this: some families pay virtually nothing in grocery taxes because they do their grocery shopping across the border in no-grocery-tax-Oregon, Washington, Nevada, Montana, or Wyoming, but still get the full income tax credit in Idaho.
First, the fairest thing to do is remove the grocery sales tax. Period. Idahoans should not pay sales taxes on groceries, while many others don’t.
But we can do even better. As an entirely different bill, clean and separate from taxes on groceries, we should abolish the “food tax credit” and simultaneously reduce income tax rates enough so that no family is hurt by removing the tax credit. It’s entirely doable and beneficial for all Idahoans. Government already has plenty of your money; don’t let them fool you into giving them any more.
Thank you, Dr. Nate! This is the most sensible explanation of the problem and method to resolve the obvious additional problem(s) surrounding this issue that I've read anywhere.