This year, Idaho can continue to count on one major source of revenue to be somewhat whole: the sales tax. A proposal to exempt groceries from the tax, along with eliminating the credit that offsets it, was prevented last year due to actions of the courts. But the issues at the heart of the matter are fiscal and they remain unchanged.
The sales tax makes up about a third of the resources our state uses to pay for schools, roads and public safety. These assets help our communities and people thrive.
Here are a few fiscal facts to keep in mind about the sales tax on groceries and proposals to exempt them.
In Idaho, groceries make up a significant portion — up to an estimated 15 percent — of the total volume of sales in the state, bringing in about $200 million per year. The tax is an important component of the state’s integrated revenue system.
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Idaho already returns roughly $150 million back to taxpayers through the grocery credit. Idaho is one of five states that crafted a mechanism to reap the benefits of the grocery tax while offsetting the cost to lower-income Idahoans. Our state offers a $100 grocery tax credit per person, and $120 for senior citizens, which is deducted from an individual’s or family’s state income tax or reimbursed for those who owe less income tax than the credit. The tax credit offsets most of the tax contribution from Idahoans with low incomes.
The grocery exemption would cost local government because a portion of the state sales tax flows there. This puts the Legislature on the hook to replace the revenue, a move that last year added about $26 million to the proposal’s total cost. This punches nearly an $80 million hole in the state budget.
If we did decide to do away with the tax at a cost of $80 million in public services, the majority of the gains would flow to those who are most able to shoulder a higher tax responsibility. Wealthier Idahoans pay more in sales tax on groceries because they are able to buy costlier grocery items such as premium cuts of meat and organic foods.
Exempting groceries from the sales tax is a careless approach to tax reform. There are steps we can take to clean up our state tax code so that it generates the revenue needed to invest in communities and asks every Idahoan to carry their share of the tax load in an efficient way. Implementing a procedure for collecting the credit without filing an income tax form would be one step.
I hope state leaders don’t revisit the misguided grocery exemption this year and instead go back to the drawing board to look for common-sense tax policies that work for all Idahoans.
Jasper LiCalzi is a professor of political economy and chair of the Department of Political Economy at The College of Idaho.