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Should NM tax food? (Updated!)
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So far this legislative session, we’ve seen several proposals to reinstate the gross receipts tax on food. The one that seems to have gained traction would apply the GRT to non-staple foods, using the WIC
guidelines. That means that while soda and ketchup would be taxable, so would white flour tortillas, pasta and rice. But taxing food could bring in millions to fill a gaping budget hole. So this week’s question is:
QUESTION: “Should New Mexico tax food? Which foods?”
We support it. The proposed food tax bill before us would bring in 138 million. This means that education and medicaid will not take deeper cuts if this passes. It also means that businesses won’t have the added tax burden on services they sell if we increase the GRT tax instead. Every time we increase the GRT, whether it is a local or state tax increase, we exacerbate the tax pyramiding problem we have in New Mexico. The worse it gets the less competitive our businesses are. The bill was improved when the sponsor aligned it with the federal WIC standards for nutrition. It’s not a perfect bill but it does spread the pain in a broad based way while exempting people who can least afford to pay the tax. And for the record the food tax repeal in 2004 should have never been done in the first place. It passed by only a few votes in the Senate then. It was bad tax policy, but good politics. Right now, we need good tax policy – put politics aside- at least until we return our state to fiscal health. California has succeeded in showing us what a failed government looks like. Let’s not follow their lead.
Simply put, I find it hard to believe that ANY tax increases are a good idea when the House in particular has not gotten serious about looking at wasteful and unnecessary spending. I’ll include some of the specific ideas we’ve outlined in the past including: specific savings including Medicaid, criminal justice, higher education administration, repeal of NM’s mini-Davis-Bacon law, limiting film industry subsidies, and a repeal of SB 33 which passed last year and will cost taxpayers millions of additional dollars on construction projects.
So, with that out of the way, I oppose taxing food. Since both Houses appear to be hell-bent on raising taxes (if they can only agree on which taxes to raise) simply re-instating the tax across the board on all food items would be simpler and fairer than picking and choosing which foods are taxed whether that be junk food, or through the use of WIC guidelines.
No, New Mexico should not tax food. Food is a necessity and the tax falls on those who are least able to afford it; it therefore punishes working low and middle income families across New Mexico. (Only two states continue to fully tax food: Alabama and Mississippi.)
SB 10, to which your question refers, goes way beyond “non-staple foods” to tax, for example, nuts; eggs which are free range, low cholesterol, brown or organic; sliced, shredded, baby, cooked and frozen carrots; goat, Ricotta and sliced and shredded cheese; tuna; honey; butter and yogurt; canned soup; and fruit-nut mixtures (trail mix).It would tax many food staples that New Mexicans rely upon, like tortillas, taco shells, chile powder and Spanish rice.
The central problem with SB 10 is that it is based on the WIC (Women , Infants and Children) program and while you would never feed an infant trail mix because they could choke, it is a perfectly healthy food for adults. So if one of the purposes of SB 10 is to get New Mexicans to eat healthier, it would seem that taxing trail mix would not accomplish that goal.
Another problem with using the WIC definition to decide which foods to tax is that it is somewhat arbitrary. Sometimes a General Mills cereal brand will be approved, while a similar Kellogg brand will not. Moreover, WIC encourages consumers to buy in bulk, so if you use the WIC definition to decide which foods to tax, juice in a 64 oz container would not be taxed but the same brand and kind of juice in a smaller size container would be taxed.
In sum, if SB 10 were approved, it would create a confusing and chaotic mess for both grocers and consumers. This is why no other state uses the WIC definition for this purpose and why SB 10 should be killed.
Think New Mexico is on record as supporting a true junk food tax limited to sugary sodas and candy. This can be accomplished by using the Streamlined Sales tax definition of food, which many states already use without any problems. It would generate about $25 million per year for the General Fund and makes sense in a state like New Mexico where the obesity rate has climbed from less that 10 percent of the population in the late 1980′s to about 25 percent of our population today.
Readers interested in learning more about the food tax in New Mexico, might want to visit Think New Mexico’s website at www.thinknewmexico.org.
I just completed my yearly dance with Turbo Tax. I am getting money back this year because of credits for installing three kilowatts of solar voltaic panels on my roof. Even after that we would not have owed any taxes to the feds or the state. This is wrong. We did not pay enough income taxes.Yes, I really feel that way. You could put our annual income last year in the upper middle class and we should have paid more in taxes but the Congress and state Legislature have no ‘huevos’ to do the right thing and
rescind Bush’s tax breaks. What do our lawmakers in Santa Fe propose? Reinstating the food tax to include staples such as rice and wheat flour. That is unconscionable. Inflicting a regressive tax on the poor while letting off the well-to-do with no rise in income taxes. It is immoral at best and I can’t believe the Legislature will do it. Stranger things have happened though. What is next? Taxing children’s vaccinations?
Well, if you check out the shelves in almost any grocery store, the only wholesome food is to be found in the produce and fish and meat section. Even much of the dairy is full of salt and sugar. Plain yogurt rather than creamy sweet peach yogurt. Everything else seems to be processed foods. It seems that we are discriminating against Hispanics and the obese. How about some objective determinant such as salt and sugar content and packaged foods. Buying tomatoes that are not packaged in plastic would be wise. How about 20-pound bags of pinto beans rather than 1-pound bags of white rice? Maybe we need a national nutritious food czar. What about a special tax on non-nutritious pale beer, with no tax on bioflavinoid-rich stouts and porters and alcohol free O’Doul’s? Well you can see where this goes. Do you want government telling you what to eat and penalizing you if you don’t eat according to some legislator’s whims? This is not the solution to our financial crisis. Downsizing government and our free-spending politicians is. Add value to the agricultural and natural resources of our great state rather than exporting them in raw form.
Taxing food, like most taxes on everyday consumer goods, is regressive — it takes more proportionally out of the pockets of the poor and near poor than it does from the affluent. Since the poor spend up to 20 percent of their income on food consumed at home compared to 10 percent for higher income people, they will be forced to bear a greater share of the budget balancing act now being performed at the New Mexico Legislature. By taxing so-called “non-staple” food items is our intent to punish unhealthy eating and possibly reduce obesity? The amount of the GRT and the evidence (ERS-USDA) don’t suggest that will work. We’d have better results spending money on food education if we want to increase healthful eating, but of course no one is proposing that. And even if all consumers knew what the right thing to eat was, would anyone be able to figure which items are taxable and which aren’t? Consumers, grocers, and state administrators alike will never be able to untangle this food tax knot. Not only is an increase in the state income tax more fair, it’s more efficient. Take the burden off the backs of the poor and put it where it belongs, on the backs of the rich. If we don’t tax them, we may be forced one day to eat them.
This is an interesting issue. People who never think about good tax policy nevertheless get emotional over this issue. But let’s look what has happened with the tax on food in New Mexico.
The state originally taxed all food except food purchased with food stamps. It also provided a tax credit for the taxes paid on food by low-income families (LICTR). Then the state decided to take the tax off food, but it wasn’t a tax break since we had to replace the money lost at both the state and local level, so it raised the tax on everything else – making our economy less efficient and competitive. So what happened to our low-income families as a result of this change?
If those families used food stamps, they got little if any benefit from removal of the tax on food, but they paid more tax on everything else they purchased. Their total tax burden actually went up and for them the system became more regressive. Even families not using food stamps probably got little if any net benefit, depending on what they bought. Wealthier families benefited as much as lower- or middle- income families (shopped at Whole Foods lately?).
Some people feel strongly that “necessities” shouldn’t be taxed. As a tax policy, however, there are real problems with this as shown by the recent debate over flour tortillas. What are necessities? Should no one pay tax on necessities? What about the rich? And if we don’t tax “necessities” will we just have to tax everything else more? If we are committed to a policy of not taxing necessities, even when purchased by people who can well afford them, then we need to start thinking about taking taxes off water, housing, electricity, natural gas, clothing, and gasoline.
Taxes pay for government services, schools, healthcare, roads, public safety, etc. The Institute believes taxes should generally be broad-based with low rates to provide a stable revenue source for government. If you deviate from this principle, it should be for a good reason and with measurable results – which should be true of all tax expenditures and preferences. New Mexico had a well reasoned, long-standing, rational approach to this issue at one time. We didn’t tax food stamp sales, we provided a credit (which hasn’t been updated in years and should be – or repealed if one really thinks this last expensive and poorly targeted “fix” was the ideal) and we taxed food sales to those who could afford it to provide revenue for state and local governments to carry out their missions. Now we’re arguing about whether some food should be taxed because it’s “bad” for you and whether “bad” food that’s nevertheless a staple in our culture should be exempted.
While narrowing the scope of the deduction makes some sense from that “necessity” perspective, the conversation is the sign we’ve already taken the wrong path and need to rethink a policy based on what feels good rather than what’s good and well reasoned tax policy.
The question should be – why did we ever quit taxing food? New Mexico’s gross receipts tax (GRT) was a broad-based tax that funded the state’s coffers and had little impact on business and consumer decisions because the rate was low. Now we’ve taken the GRT off of food items bought in grocery stores and increased it everywhere else. This shell game did not accomplish what the proponents had hoped. With the repeal the GRT does not have the appeal of a low rate broad-based tax that keeps our budget balanced. It is instead a high rate, consumer tax that needs to be increased to balance the budget.
Having served on the Governor’s Budget Balancing Task Force, which I lovingly referred to as the Tax Force, I did learn a few things. In order to make good tax policy, a tax should exhibit some of these four principals: adequacy, efficiency, equity and simplicity.
- Adequacy means that the tax should generate sufficient revenue. New Mexico’s Gross Receipts Tax does that when applied to all food items.
- Efficiency means that taxes should not interfere with relative prices. This tax became inefficient when repealed in grocery stores. Now restaurant food sales take on the additional burden of a higher GRT which makes food in restaurants cost more.
- Equity refers to the ability of some individuals to pay more than others. The GRT has always been more of a burden on those with lower incomes. However, the poor don’t pay GRT on food when purchasing with the Supplemental Nutrition Assistance Program (SNAP) formerly known as food stamps. What they are paying more for, and will pay much more for if we don’t reinstate GRT on food, is all the other purchases they make – clothing, diapers, cleaning products and services.
- Simplicity means it should be easy to comply for both the taxpayer and the state. If applied to all goods and services the GRT could be low rate broad-based tax that is easy to collect and comply with.
Quit trying to decide what foods are “good” and what foods are “bad” – just tax them all at the same low rate. Tortillas should not be taxed at a higher rate than any other food item. New Mexicans are used to paying GRT. They were not complaining about it before because the tax was nominal. They will not complain about it in the future if it’s reinstated at a low rate. New Mexicans are smart people. They will make the right choices. They don’t need to be taxed into good decision making.
What New Mexico needs is to reestablish discipline and restraint in the growth of government spending to protect our citizens now and in the future.
The state is facing a severe revenue crisis brought on by the recession and the drop in gas and oil prices. We’ve been through a couple of legislative sessions and, so far, the only response by lawmakers has been to cut education, health care, public safety, and most other programs and services.
The crisis was made worse by the fact that New Mexico cut taxes by nearly a billion dollars, with most of those cuts benefitting the richest among us. One of those “tax cuts” was removing the tax on food, but along with it came an increase of a half cent in the state’s gross receipts tax, a very regressive tax At the time it was considered, New Mexico Voices for Children opposed the bill because we felt it would cost the state too much revenue and because the half cent increase in the GRT made our regressive tax system even more regressive.
Now comes the proposal to put the tax back on about two-thirds of food, including the food that most working families eat regularly. The ‘tortilla tax’ is beginning to feel like a bait and switch, in which working families lose every time a vote is taken. First we cut income taxes for the wealthy, then increase the GRT and take the tax off food, and then put the tax back on most of the food preferred by working families and the poor.
New Mexico has cut more than $700 million from its budget. Those who say we need to cut deeper are shamefully out of touch with how the cuts are impacting families. New Mexico used to provide assistance to low-income parents who need childcare in order to work full time. But now, we’ve cut eligibility so low that a single parent with one child making a little more than minimum wage makes too much money to qualify for assistance. Is this really how we want to treat working parents who are trying their best to provide for their families? Is denying safe, high quality childcare to our youngest children during their most formative years really the best way to balance the state budget?
Lawmakers need to raise significant revenue, but taxing food is neither fair nor good tax policy. Making out-of-state corporations pay their fair share and repealing tax breaks doled out to the rich is fair, it’s accountable, and the revenue is greatly needed in order to preserve critical programs like childcare assistance, education and health care.