On the surface, exempting food from the 6 percent Idaho sales tax seems like a good idea. After all, low-income households spend a higher proportion of their family budget on food. So it must be a progressive idea, right?
This is one area of state fiscal policy where Idaho has a rather elegant and fair solution already in place. A $100 grocery tax credit is given to every Idaho resident. It is a refundable tax credit, meaning that it does not require income that generates a $100 income tax bill. An extra $15 is granted to senior citizens. This tax credit does not apply to those in jail or to those already subsidized with food stamps.
The normal grocery tax credit is equal to offering each Idaho resident $138 in sales tax-free groceries each month. A “hamburger” diet heavy on basic food staples would be close to tax-free already. A “steak” diet of luxury items and organic foods would pay sales tax on food expenditures exceeding $138 per person per month. The current Idaho sales tax policy is already progressive. Do a little math with your household grocery budget and the number of people in your household to see where you stand. But remember that many of the items in a grocery store are not food — household cleaning products, personal hygiene items, pet food, and so on.
And that leads us to the definition of food. This is surprisingly harder than it looks. How do you treat ready-to-eat meals or deli counter items? States vary a lot in their definitions of food, but it is not uncommon to see uncooked chicken exempt from sales tax, while cooked chicken is taxed just like a restaurant meal. Are potato chips food or a prepared snack? Considering that retailers may have to program their cash registers for tens of thousands of items as taxable or tax-exempt, you begin to understand that this exemption will be costly to administer and oversee. In contrast, the grocery tax credit is blind to all these issues; it simply refunds $100 to each Idaho resident.
Last, consider the number of visitors to Idaho whose simple vacations consist of camping or staying with friends and family. One of their biggest expenditures while in our state may be the groceries they purchase. Isn’t it both wise and fair to tax out-of-state tourists for the food they buy in Idaho? Sales and gas tax may be the only revenue they provide to local and state government in exchange for the services they enjoy while here.
Do us a favor, Gov. Otter. Veto the sales tax exemption bill. It’s the right thing to do for all Idahoans.
Dick Gardner and Mike Ferguson are both economists who formerly served in the Idaho Division of Financial Management.