When you hit the neighborhood grocery store for your weekly shopping trip for eggs, milk, bread, fruits, and other staples, you pay the cost of the groceries plus an additional 6% for the state sales tax going to the state general fund. The grocery tax brings in about $246 million for the state budget.
You may be surprised to learn that Idaho is one of only five states to fully apply sales taxes on grocery purchases. Of our six neighbor states, only Utah taxes groceries, but does so at a lower rate than other purchases. In this legislative session, Idaho can and should repeal the sales tax on groceries. Many families are hurting from lost work opportunities and lost wages in the year of COVID. Families need some tax relief. Also, because so much federal money is flowing into the state, our budget is rolling in surplus dollars (over $600 million) and money built up in a tax relief fund ($180 million) set aside exclusively for tax relief.
Last week, I presented a plan to exempt all groceries from the 6% sales tax while reducing or eliminating the grocery income tax credit. The proposal would provide immediate tax relief to every Idahoan. It would reduce revenue coming into the state budget, but would also reduce the grocery tax credit Idahoans get on their income taxes. Overall, the bill would decrease the state’s general fund by $43 million in 2022 because the tax and revenue difference is partially offset by using Tax Relief Fund money that has been built up. This means Idahoans would have around $130 million more to spend on other things. That is a $130 million tax cut! Also, there would be more economic activity from increased grocery sales in Idaho and other increases from Idahoans who have more money left to spend in other parts of the economy.
The bill is a slam dunk, right? Well, not quite. Despite its amazing support, and even the Governor saying he would sign a grocery tax repeal, the chair of the House Revenue and Taxation Committee has so far declined to set a hearing for the bill. This is disappointing especially because so many Idahoans need lower taxes, want lower taxes, the budget is in great shape, and there is seemingly no need to keep so many tax dollars from hardworking families across the state.
Personally, I have no doubt the bill would sail through committees and through both chambers if it were allowed hearings and floor votes. Hopefully, the bill will be scheduled soon, Idahoans deserve tax cuts after so much overspending the last few years and after such a difficult 2020. If you would like to see this plan go forward, please contact your representatives and the House Revenue and Taxation Committee chairman, Rep. Steve Harris.
Ron is a professor of economics at BYU-Idaho and an Idaho state representative (LD.34). He specializes in applied microeconomics, public economics, quantitative methods, the economics of education, poverty economics, and public choice. He has been teaching for nearly 30 years, beginning at the University of Connecticut, Ohio University-Eastern, and the last 19 years at BYU-Idaho.