It may be coming back.
A state sales tax on food that's been incrementally decreased for the past two years — and widely viewed as one that unfairly targets low-income families — could be under consideration for a complete reinstatement in the face of ongoing, large-scale revenue losses.
Members of the Utah Tax Review Commission heard testimony Thursday from advocates of the disadvantaged, grocery industry representatives, tax watchdogs and a state legislator who sponsored a failed attempt at increasing the food tax last session. This time, however, the idea may find some traction under the cloud of an upcoming state budget shortfall currently being estimated at $700 million.
Last year, Rep. Kay McIff, R-Richfield, tried to erase step-downs in the sales tax assessed on food passed by legislators in 2006 and 2007 that reduced rates from 4.75 percent to their current level of 1.75 percent. That bill never made it out of the House, and it ran counter to former Gov. Jon Huntsman Jr.'s well-publicized pledge to work toward completely removing the tax on food.
It also raised the ire of groups engaged in outreach to low-income families, who said any tax on food is regressive in nature — one that places a larger burden on low-income families who spend a bigger percentage of earnings on food.
Art Sutherland from the Coalition of Religious Communities, an advocate group for low-income Utahns, told the commission that the timing couldn't be worse for upping the tax collected on food.
"The recession has hit a lot of people in the low-income class," Sutherland said. "More than half the people asking for food at Crossroads have never had to use a social-service network before. The unemployed still need to put food on the table."
McIff has modified the approach he took in his bill last year, and this time around has a new wrinkle he says will help balance the tax disparity between lower- and upper-income groups. The idea is to create a new, targeted state earned income credit of 6 percent that he says will more than offset outlays for a tax hike.
McIff said returning the food tax rate to 4.75 percent would put 140 million new dollars into the general fund and about $16 million into earmarked accounts. The income credits would only amount to about $18 million to $20 million out of that new revenue stream.
Advocate Allison Rowland, budget and research director of Voices for Utah Children, said her group backed McIff's proposal last year, and likes the new version even more.
"Our understanding is Rep. McIff is interested in allocating some of the revenue that would result from reinstating the full sales tax on food to particular programs, including Medicaid," Rowland said. "We applaud this as another measure to mitigate the regressive effects of sales tax on food."
Rowland's group also backs a multi-pronged effort by the state to find new revenue sources, including tapping more than $400 million in the state's Rainy Day Fund, and a temporary surtax on the incomes of Utah's wealthiest taxpayers.
Further support came from the Utah Taxpayers Association, a policy watchdog. Association Vice President Royce Van Tassel said his group could support reinstating a full sales tax on food, as long as some targeted tax breaks for low-income residents were attached.
"Most Utahns understand that there's no need to provide sales tax relief for food purchases for somebody who makes $200,000 a year," Van Tassel said. "But for the low-income family that's trying to keep food on the table, there's a good reason to provide some tax relief there."49 comments on this story
McIff told the commission that if the idea was to make the increase revenue neutral, cuts could be found in other areas, but in the upcoming battle to balance a state budget in the face of precipitous revenue declines, the new money could be put to good use.
"We're $65 million short in Medicaid funds for the coming year," McIff said. "We are facing a 15 (percent) to 20 percent increase in higher education enrollment and we're asking higher education to take a 17.5 percent cut. We do need some additional revenue, and this is a way we can do it without hurting our economic growth or economic activity."
The tax review commission will weigh in on the food tax proposal at its next, and final, interim meeting in November. Its decisions are handed off to legislative leaders for their consideration in crafting new state statutes.