Politicians ought to have trouble keeping a straight face when they say Utah should restore the full sales tax on groceries.
Their chief argument has to do with the Great Recession that hit nearly a decade ago. When hard times come, people stop buying luxury items and they cut back on things like new clothing, but they have to keep buying food. Because the state now taxes food at only 1.75 percent, rather than the full 4.75 percent, Utah’s economy missed out on a lot of revenue and is much more vulnerable during hard times than it ought to be.
As an isolated, academic argument, that makes some sense. But we don’t live in an isolated, academic world, and the argument flies in the face of how Utah weathered the storm of that recession better than most states. This was true in part because lawmakers put other measures in place, such as rainy day funds.
But the argument also belies just how good the state’s economy has been.
As of December, unemployment in Utah was 3.1 percent. Last summer, CNBC named the state the best place in the nation for doing business, citing an educated workforce, great mass-transit, affordable real estate and, of all things, tax breaks.
Those were tax breaks for businesses, of course, but why should the wealthy get all the breaks?
Despite all this, one lawmaker told me, “Think of how much better we might be doing” if the state were taxing food more.
Well it’s hard to top 3.1 percent unemployment, especially if you yank money out of the economy by making everyone pay a bit more for one of life’s necessities.
For much of the decade since lawmakers lowered the state’s share of sales tax on food, some lawmakers have pushed unsuccessfully to bring it back. This year, however, it has new life because it’s being talked about as one of several possible ways to give public schools more money, perhaps avoiding a high-powered initiative drive to raise the state income tax by 17.5 percent — something that would net schools an estimated $750 million more.
If this becomes more than just general chatter, advocates for the poor are not likely to sit still. Tim Funk, director of the Crossroads Urban Center and a veteran of the many struggles leading up to a reduction in the food tax years ago, told me, “You just have to hear the arguments more than once to know how funny it is to hear them again. I guess it’s funny and it’s sad at the same time.”
For the record, his arguments haven’t changed, either. Taxing food hurts low-income families the most because they need to eat as much as anyone else, and yet they have little money with which to do so. Lawmakers inevitably speak of granting credits or refunds to the poor for money they spend, but Funk says many people won’t know how to claim those.
“A food tax reduction is a good thing and it serves everybody,” he said.
He points to a recent study by the Pew Charitable Trusts that showed only seven states apply the same sales tax rate to food as to everything else, and only six others (Utah included) tax it at a lower rate. The rest don’t tax it at all.
Meanwhile, lawmakers are concerned that sales tax revenues in general are beginning to drop. Normally, this would be a sign of a general slowdown, perhaps leading to a recession. But Sen. Jerry Stevenson, R-Layton, co-chairman of the executive appropriations committee, told reporters on Tuesday it has a lot to do with a general shift to online shopping.
“People buy differently than they used to,” he said.
The state recently signed an agreement with Amazon, requiring the retail giant to charge sales tax to Utah buyers, but Stevenson said it might be July before the state knows how much that brings in.
Utah has long compared its tax structure to a three-legged stool, with income, property and sales taxes each making up a leg. But even if the internet truly is making one of those legs shorter, that won’t make efforts to tax food any less wobbly.