On a recent Saturday morning I went to the grocery store, which I often do because I cook most Saturdays. I had a few things to get for dinner, and I found them quickly and put them in the cart: four small tilapia filets, five ounces of spring lettuce, two Idaho potatoes and a bottle of wine. There were also some items we were short on in the kitchen: milk, bananas and grapefruit. I got those, too.
Then, I started in on electives. I grabbed a pint of Ben & Jerry's sorbet, a frozen lasagna dinner and a container of pre-prepared chicken rice soup. In the checkout line, I threw in a pack of Juicy Fruit gum.
Altogether, my brief shopping excursion cost me $35.08. That included $1.06 in sales tax. The state of Virginia, where I live, taxes all grocery store purchases at a rate of 2.5 percent. The tax on the wine is 5 percent. It didn't seem especially onerous to me.
Had I gone to a store across the Potomac River in Maryland, the numbers would have come out differently. Most of my purchases would have been completely tax-free. But not all of them. The wine, the gum and the soup would have been taxed at 5 percent. The sorbet would have been exempt, because the law treats any frozen dessert larger than half a pint as intended for home consumption. Assuming, for the moment, that Safeway charges the same prices for these products in both states, I would have saved 17 cents in sales tax by shopping in Maryland. Not worth the drive, in my opinion.
If I really wanted to pinch pennies, New Hampshire would be the state to do it in. As the state's political leaders love to boast, New Hampshire doesn't charge sales tax on anything. Every item I bought would have been exempt, even the wine.
Mississippi would be the place to avoid. Mississippi imposes a sales tax of 7 percent - the highest in the country - and doesn't exempt any kind of groceries, period. The tax on my bill there would have been $2.96. I might have made some of that back through lower prices, but I wasn't willing to travel all the way down there just to find out.
There's nothing remarkable about the idea that taxes vary a great deal from place to place; most Americans not only understand that but generally approve of it. If one jurisdiction wants a high tax on hotel rooms to raise money, and another wants a low tax to attract more tourists - well, that's federalism.
But when the subject is food, state-to-state differences appear a little peculiar. If bananas are tax-exempt in Maryland, it seems logical to ask why they should be taxable in Virginia. And there is the underlying question of social fairness. People buy groceries to feed their families. Wouldn't it make more sense to leave essentials alone and make up the revenue somewhere else?
That is, in fact, what a majority of states do. Thirty of them exempt most groceries from taxation; seven others tax them at a rate lower than the one they impose on other purchases. Five states tax groceries at the full rate but then return some of the money through credits or rebates. By the beginning of this year, there were only three states left that charged the full amount on groceries and kept all the money: Arkansas, Alabama and Mississippi.
Whenever the revenue picture in most states is relatively bright, as has been the case lately, grocery taxes inevitably emerge as a political issue in those places that still impose them. And that has happened over the course of the past year.
It happened most conspicuously in Arkansas. At 6 percent, with no exemptions and no credits, the state's tax rate on groceries has been one of the highest in the country. Democrat Mike Beebe built his campaign for governor in 2006 around a pledge to reduce the tax, and when he took office in January with the state treasury showing a surplus of more than $800 million, there was never any doubt that the law would change. Beebe proposed cutting the grocery tax in half, fending off some liberal enthusiasm for eliminating it altogether, and the legislature approved his plan without a single dissenting vote. When it takes effect in July, it will be the biggest tax cut in Arkansas history.
Things have been more complicated in Mississippi. A year ago, the legislature passed a bill to cut the grocery tax in half, to 3.5 percent, but Governor Haley Barbour vetoed it, and the veto stuck. His reasoning was straightforward: The grocery tax cut would have been coupled with a more than five-fold rise in the state cigarette tax - from 18 cents to $1.00 - and thus would have meant a net increase in state taxes overall.
Barbour said he had run on a "no new taxes" platform, and so he couldn't sign the bill. Critics argued that his prior career in Washington as a lobbyist whose firm represented tobacco companies might have had something to do with the decision, but that's hard to prove. The bottom line is that until Barbour changes his mind, Mississippi will still be taxing groceries at 7 percent.
That sounds a little unfair, and perhaps it is. But, in fact, the whole grocery tax issue is nowhere near as simple as it might seem.
Creating an exemption for all purchases of food by anybody does take care of the fairness problem, in a way. Taxing groceries is regressive; it hits poor people proportionately harder than the middle class and the affluent. But exemptions also create what's sometimes called the "caviar effect," in which affluent shoppers who are essentially buying luxuries are given a free ride.
Exemptions also cost the states that offer them a significant amount of money. Arkansas will need to find $122 million in the coming fiscal year just to make up the difference between a tax of 6 percent and 3 percent. Mississippi's legislators tried to raise the cigarette tax because they knew they had to plug the $62 million hole that would have been created by the grocery tax cut. And a significant portion of that $62 million, even in a poor state such as Mississippi, would have been a gift to people who could afford to pay the tax and weren't complaining about it.
The caviar problem is what has led five states to avoid exemptions and to tax groceries at the regular rate but offer credits to low-income taxpayers. This might seem like an ideal solution, but it presents problems of its own, as the Center for Budget and Policy Priorities has carefully documented.
A study conducted by the center several years ago found that grocery tax credits aimed at the poor were mostly ineffective for three reasons: The credits were too small to make up for the taxes paid; their value tended to erode with inflation; and those who were eligible often didn't even know the subsidy existed.
Thinking about all this, I can't help but reflect how my own views on taxation have changed over the years, as the anti-tax movement in America has grown more militant and rigid.
I've come to think about taxes roughly in the way that I think about exercise: Sometimes the best plan is simply the one that people will tolerate. I know that the 45 minutes or so I spend on a stationary bike in the morning isn't the single most effective form of exercise I could choose. A treadmill would be better; jogging would be better; a combination of workouts at a well-equipped gym would probably be best of all.
But I don't like any of those. If I started them, I know that within a matter of weeks, I'd be making excuses for delinquency. Biking in the basement is something I'm willing to do. So it's the best policy for me, even if a different one might make more sense.
When I go shopping on Saturdays, I don't look at the tax line on the receipt. I hardly noticed a couple of years ago when the rate in Virginia was cut from 5 percent to 2.5. I just continued paying it. I know that's partly because I can afford to pay it without any trouble, but I also know that people in much tighter financial circumstances treat the sales tax on food the same way. They don't look at it. They just pay it. That's not true of income taxes, property taxes or almost any other form of revenue collection. The sales tax - at least on everyday purchases - is the one people tolerate. Maybe it shouldn't be that way, but it is.
That's not to argue that Mississippi, the poorest of the 50 states, should be taxing groceries at the highest rate in the country. It's merely an observation that at this point in American politics, the refusal of citizens to fund government at an adequate level is a more serious problem than the regressiveness of the system.
If I were the czar of state tax policy in America, I'd broaden the base so that a whole range of currently exempt services - legal advice, advertising, consulting - would be included. I would tax groceries at a lower rate. But I don't think I'd go so far as to exempt them altogether.
Given all the pressures and complications, it seems to me that Virginia (and now Arkansas) has it just about right. When you balance it all out, a middling tax of 2.5 or 3 percent on tilapia, sorbet and gum may be as intelligent a compromise as we are likely to reach.The sales tax - at least on everyday purchases - is the one people tolerate. Maybe it shouldn't be that way, but it is.
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