Cartons of eggs are seen for sale in a Sprouts Farmers Market on August 15, 2022 in Houston, Texas. (Photo by Brandon Bell/Getty Images)
Let’s start this discussion of state tax policy with everyone’s favorite luxury food: eggs.
In Alabama, according to al.com, the average price of the hen’s product went up 74% last year. Last week, a Montgomery supermarket sold a dozen white eggs for $5.26, about 44 cents per egg. But when you buy that dozen, you actually pay $5.79.
That’s because Alabama fully taxes groceries. With local levies included, it’s a 10% surcharge on any item you purchase at a Montgomery supermarket.
So add 53 cents to the price of that plastic carton. You get 12 eggs but pay for 13.
This isn’t normal. Most states don’t tax groceries. The states that do mostly tax them at a lower rate than other goods or offer credits to offset the taxes.
I bring this up today because the Republicans who control the Legislature have started talking about some kind of tax cut in the 2023 session, which starts next week.
It’s not clear how big that cut would be, or what tax might be reduced. But with the Education Trust Fund (ETF) looking flush this year, GOP leaders see an opportunity. House Speaker Nathaniel Ledbetter, R-Rainsville, told the Alabama Daily News last week that he “certainly want(s) to see some of it go back.” Sen. Arthur Orr, R-Decatur, the chairman of the Senate’s education budget committee, said last month he expected a “ballpark” tax cut of around $500 million.
If we’re going to throw a state levy overboard, let me suggest Alabama’s 4% sales tax on groceries.
Now, sales taxes are critical to state government. In 2021, they made up over one-quarter of the ETF’s revenue. The Legislative Fiscal Office estimates that the grocery tax alone brings the state $608 million.
But sales taxes are also extremely unfair.
Alabama leaders pride themselves on creating a low-tax state, but that’s only true for people at the top. A 2018 study by the Institute for Tax and Economic Policy found the bottom 20% of Alabama’s earners fork over twice as big a share of their income as the top 1%.
Grocery taxes are a big reason for that. Montgomery’s tax rate may be higher than others, but most Alabamians pay at least 9% tax on the food they buy. Whatever you spend on groceries each month — $200, $400, $600 – over a year you’ll pay the equivalent of a month’s worth of groceries to the state for the right to feed your family.
It falls hardest on those with the least income. You can choose not to buy a rug, a video game system or a piece of furniture. But you can’t choose to avoid food, unless you’re a fern.
Mississippi and South Dakota are the only states that do what Alabama does. Even Tennessee, not renowned for liberal approaches to governance, reduces its state sales tax on food.
I’m not crazy about cutting a tax that funds schools without replacing it — not when Alabama per pupil spending continues to trail national and regional averages. For years, former Montgomery Rep. John Knight called for a grocery tax cut paired with the elimination of provisions allowing people to deduct taxes paid to the federal government on their Alabama returns. I’m all for that. The deduction benefits Alabama’s wealthiest, who already have most-favored nation status from our government.
But doing away with it seems unlikely in a Republican-controlled Legislature. Most lawmakers would rather cut taxes and be done with it.
So aim your cleaver at the grocery tax.
Cutting the whole thing might be a bit too much for legislators. But it would slash the tax bill for a Montgomery household buying $400 of groceries a month from $480 a year to $288 a year. That’s nearly $200 back in everyone’s pocket. And it could be spent on clothing, or rent, or more groceries.
But let’s say you cut the state sales tax on groceries from 4% to 1%. That’s a total rebate of $456 million, well within that $500 million ballpark Orr mentioned. And the tax bill of that Montgomery family would fall from $480 to $336. Not ideal, but that’s still $144 that can be spent on anything else.
Legislators could cut other levies, like the income tax. (That would also take money out of the ETF; all state income taxes in Alabama go to pay teacher salaries.) But if we’re going to reduce a state revenue stream, it might as well be one that makes it harder for everyone — especially the 760,000 Alabamians living in poverty — to make ends meet.
Will the Legislature make moves to put Alabama in line with the rest of the country on grocery taxes? As of Friday morning, there weren’t any prefiled bills addressing the sales tax. Legislators generally do tax rebates through income tax deductions, and I suspect that if they go for a tax cut, that’s the path they’ll take.
But if the education budget revenues are as good as legislators think they are, the state has a rare chance to do something that will benefit middle and working class people in Alabama. And, maybe, make your eggs cheaper.
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