Cutting sales tax on food back on the menu in Tennessee

Hank Hayes • Feb 3, 2007 at 10:09 AM

Early in this legislative session, there's a new push for Tennessee lawmakers to again consider measures to scrap or partially chop the state's tax portion at the cash register on sales of bread, milk and other food staples.

The idea of removing or scaling back the sales tax on groceries is not new and remains popular, but making it law appears anything but well done on Nashville's Capitol Hill.

First, there's the matter of resulting lost state and local government revenue - with one state estimate reaching more than a half billion dollars over a multi-year period - plus consideration of spending priorities.

Still, with its coffers full and growing, and its Rainy Day Fund replenished, Tennessee is among more than a dozen states considering cutting or eliminating its food tax this year, according to the National Conference of State Legislatures (NCSL). Such exemptions generally apply to food purchased in grocery stores, not in restaurants.

Most states would rather not tax groceries, and the states that do tax food are considered "relics," according to the Washington, D.C.-based Center on Budget and Policy Priorities (CBPP), a group that tracks state policies affecting the poor.

State Rep. Matthew Hill (contact information, biography), an advocate for cutting the sales tax on groceries, said such a tax cut has a "better than average" chance this year in Nashville. He plans to sponsor one bill that would cut the state sales tax on food but leave the local-option sales tax intact.

"They need revenue to help pay for roads, schools and infrastructure, and that is a fair argument," Hill, R-Jonesborough, said of local government needs. "This is a moral issue. ... I've said this a thousand times: ‘Everybody does not need a Lexus or a yacht, but food is the most basic thing in the world people need to survive.'"

Cutting the sales tax on food this year, Hill noted, faces two challenges. One is forging consensus legislation out of other similar bills.

Hill said the other challenge is getting Gov. Phil Bredesen on board.

"This governor has stated he is not interested in a tax cut on food," said Hill.

Tennessee has one of the country's highest sales taxes on food at 6 percent and one of the lowest taxes on cigarettes at 20 cents a pack. Bredesen, who will deliver his budget message to lawmakers on Monday, has said he plans to propose increasing the state's cigarette tax.

But he recently told the Associated Press that the move would not be linked with a decrease in the state's sales tax on groceries. Bredesen said he's "not ideologically opposed" to reducing the food tax, but he has other spending priorities - especially in education and health care.

The Washington, D.C.-based Tax Foundation (TF) suggests there are a number of reasons why it doesn't help to exempt groceries from sales taxes.

For instance, TF said food stamps funnel free food to the poor, so tax exemptions don't help them. TF also pointed out the poor eat large amounts of taxed fast food.

The policy group also noted Tennessee is indeed a low-tax state, ranking 18th in the Tax Foundation's State Business Tax Climate Index. During the past three decades, TF said Tennessee's state and local tax burden has consistently ranked among the nation's lowest.

But lawmakers have filed a number of bills to cut the state sales tax on food. One bill calls for balancing the tax cut with an increase in the cigarette tax. Another wants to establish a "sales tax holiday" on taxing food sales.

Then there is a solution proposed by state Rep. Stacey Campfield, R-Knoxville, to get rid of the sales tax on food and replace the lost revenues with a tax on pornography.

TF staff economist Curtis Dubay, in a blog posted on the Tax Foundation's Web site (www.taxfoundation.org), did not think much of Campfield's so-called "tax porn not corn" idea.

"We have said it a million times, but we will keep saying it until lawmakers learn: The tax code is not a tool for implementing social policy," Dubay wrote. "When lawmakers tinker with the code for purposes other than raising money for government programs, the code becomes less fair and more harmful to the market. If Representative Campfield does not like porn, he should write a bill to outlaw it or curtail its distribution and leave the tax code to the sole pursuit of raising revenue."

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