We hear it every year. Alabama is one of just three states that levies its full sales tax on groceries. Most states tax groceries at a lower rate or exempt them from sales taxes entirely.
The reason is simple: Sales taxes tend to be regressive, and sales taxes on necessities like groceries are especially so.
Also every year, we hear from some state legislators that they have a bill to remove the state’s sales tax from all groceries, or at least some groceries. And every year, the bill goes nowhere.
Will this year be any different?
There are certainly a lot of competing plans for reducing or eliminating the state sales tax on groceries floating around the Alabama Legislature during the current session. There are Democratic plans and Republican plans. There are plans that are broad based, and there are plans that are narrowly tailored. There are plans that pay for themselves, and there are plans that don’t — or at least may not.
All this is a sign that support for doing something to alleviate the tax burden on the poorest Alabamians is reaching some kind of critical mass in Montgomery. That’s a good thing, but there is a downside to it.
The variety of competing plans to do something about the grocery tax indicates there is, as of yet, no consensus on the issue. Reducing or eliminating the state’s sales tax on groceries could suffer the same fate that proposals for a state lottery do whenever they come up in the Legislature: They all die because lawmakers refuse to give enough support to any particular proposal to pass it.
Alabama House Minority Leader Anthony Daniels, D-Huntsville, has said Democrats may propose introducing a tax holiday this year in which state sales taxes would be eliminated entirely on food for one month. The data from that experiment, Daniels said, would then be evaluated to determine whether eliminating the grocery tax would create a deficit in the education fund.
Some Alabama Democrats have argued that eliminating the sales tax on groceries will pay for itself because most people will spend the money they save on grocery purchases on other things that are still taxed.
This seems like wishful thinking, especially coming from Democrats, who are usually critical of Republican claims that tax cuts are self-funding. Whether a tax cut can pay for itself by stimulating more economic activity is, in reality, dependent on a host of factors, such as the type of tax, the overall state of the economy, and how high the tax rate was before it was lowered. When all of that is factored in, most tax cuts aren’t self-funding.
Republicans command an overwhelming majority in both the state House and Senate, so it’s more likely that if any grocery tax cut passes, it will be a Republican proposal.
Sen. Andrew Jones, R-Centre, is working on a bill requiring a constitutional amendment that would eliminate the grocery tax and replace the revenue by limiting the amount of federal income taxes Alabamians can deduct from their state income tax filings. His bill is straightforward: Lower a tax that most adversely impacts the poor while eliminating a tax break that mostly benefits the relatively well off. Given the overall repressiveness of Alabama’s tax code, this seems a fair trade, and it doesn’t involve touching the third rail of raising Alabama’s low property taxes. But it would require voter approval for the amendment.
Sen. Arthur Orr, R-Decatur, has a bill that would phase out the sales tax on groceries covered by the federal Supplemental Nutrition Program for Women, Infants and Children, which includes baby foods and formulas, milks, cheeses, fruits and vegetables, eggs, canned fish and peanut butter. But the phase out would pause if growth in the state’s Education Trust Fund, which is funded by sales tax revenue, drops below 2%.
The drawback to Orr’s bill, however, is it is narrowly focused.
With such varying approaches to sales tax relief, we worry that the Legislature will again do nothing, which is the worst option of all.
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