1Sales Tax on FoodBy: Natalie Done, Ann …., & Jessica …..General History of Tax• Tax has been around since ancient times • The Egyptians used taxation as did the Romans • Taxes “finance services that the State is obligated to provide” and to fulfill its agenda. http://www.worldwide-tax.com/history_of_tax.aspTypes of Tax• Progressive Tax: Varying rates on graduated scale based on income of taxpayerEx: income tax increases with income• Regressive Tax:Fixed rate separate from taxpayer’s income• Food Tax is a Regressive Tax• Lower-income people pay a higher share of their income on Food Tax• Over one year a food tax in the 8% range paid by a family of four is enough money to feed them from Thanksgiving to Christmas • Chris Daly of Chattanooga, chairman of Tennesseans for Fair Taxation (http://www.courier-journal.com/apps/pbcs.dll/article?AID=/20051228/NEWS0104/512280404/1008/ARCHIVES)Purposes of Tax• One way states and localities generate revenue is through food tax• “Tax policy analysts advise state policymakers to design efficient, equitable, and stable tax systems• …It ought to be fair to different groups of people” (http://scholar.google.com/scholar?hl=en&lr=&oe=ISO-8859-1&q=cache:5p7uBoVvaTEJ:www.taxpolicycenter.org/sfc2003/pdf/MaagMerrimanStateTaxNotes03.pdf+%22food+tax%22)• Since food tax is a regressive tax, is the food tax fair?U.S. History• As of 2005, forty-five states and the District of Columbia levy general sales taxes. Most of these states have in some way altered their original sales tax standing. • Of these states:• Twenty-nine states and the District of Columbia exempt most food purchased for consumption at home from the state sales tax. Louisiana and New Mexico are the states that most recently eliminated their sales tax on food• Four states tax groceries at lower rates than other goods; they are Illinois, Missouri, Tennessee and Virginia.2• Five states — Idaho, Kansas, Oklahoma, South Dakota, and Wyoming — tax groceries fully but offer credits or rebates to offset some of the taxes paid on food by some portions of the population. These credits or rebates usually are set at a flat amount per family member. The amounts vary, but typically are insufficient to give eligible households full relief from sales taxes paid on food purchases. • Seven states continue to apply their sales tax fully to food purchased for home consumption without providing any offsetting relief for low- and moderate-income families. They are Alabama, Arkansas, Hawaii, Mississippi, South Carolina, Utah, and West Virginia.• Local governments, which in many states levy their own sales taxes, usually follow state policy on the food exemption. Major exceptions include localities in Arizona, Colorado, Georgia, Louisiana and North Carolina. Grocery food purchases in those states are fully or partially exempt at the state level, but typically taxed at the local level.Utah’s Current Situation• Currently Utah charge 6.6% on all food items that are purchased and doesn’t offer any credit or rebate to offset the cost of food for lower income families.• Plus, Utah is currently one of only six states that still taxes food. This shows, that since the previous graph was made, 3 states no longer tax food.What To Do…• Rep. Merlynn Newbold, R-South Jordan, is proposing a bill that would eliminate the tax on groceries (not pre-prepared foods) completely but add a small increase to the sales tax rate on non-food items to protect cities and counties from revenue losses. • She is working with the cities and towns to make sure none are unfairly burdened. Under the legislation, the city portion of the state sales tax on non-food sales tax would increase one-tenth of 1 percent, to 1.1 percent. The county sales tax on non-food items would increase from 0.25 percent to 0.28 percent. Lawmakers also want to come up with a formula to share revenues so small communities don't suffer revenue shortfalls.3What the bill would achieve..• Reduce the burden that is placed on low income individuals and families.• The removal of the grocery tax would mean a tax break of about $86 for every Utahan. Example of how the Sales Tax on Food Places a Disproportionate Burden on Lower-Income Households• To purchase a nutritious diet at the grocery store, a family of four in 1997 in the continental United States must spend at least $4,950 per year, according to the U.S. Department of Agriculture. If a state’s combined state and local sales tax rates total seven percent - a typical rate in states that tax food - the annual tax bill on that family’s grocery purchases would be about $347. For a family at the poverty line, the tax paid on food is equivalent to about a week’s wages. Were it not for the tax, the family could buy an additional 3.5 weeks’ worth of groceries.Possible Side Effects of removing Food Tax:“It's the old tax catch-22: governments need tax dollars to run, but nobody wants to pay”http://www. newwest.ne t/index.php/ci ty/article/4447 /C104/L104To offset the loss of revenue:• State programs could be cut which could leave some low-income individuals worse off if social welfare programs are cut• Raise the sales tax on some non-food items: How do you decide which items to tax instead?Making Up For EliminatingFood Tax If there is a problem..• Offer rebates to lower income households• By eliminating or reducing food tax, states are swayed to allocate the lost taxes elsewhere. This becomes controversial because it can in fact hurt lower income households as well as move the tax to another facet which inevitably makes it appear as though no tax cut has been provided.• In order for tax credits to work at its full potential, it should:• be available to all poor and near-poor individuals and families who are exposed to the tax• be large enough to offset the sales tax on a family’s grocery purchases. • NONE of the seven states now administering sales tax credits or rebates meet these two tests. This ideal program should be revamped and adjusted to fit these or similar qualifications.4• The most commonly suggested is a refundable food-tax credit for low-income consumers. Credits, however, do little or nothing to improve the growth of sales tax revenue over time. This brings another complication-regressiveness.• Ideally, a food-tax credit can provide comparable benefits to low-income families at a significantly lower cost