The Leading Voices in Food
E137: Why Grocery Taxes Hurt Low Income Families More – Evidence for Policymakers
Taxes fund many important services, such as education, transportation, parks, and healthcare that benefit us all and our society. But does it make sense to tax groceries? Today, we’re exploring research on the impact of grocery taxes, particularly, on low income families. We have two guests today who have collaborated on a really interesting project. Agricultural economist, Yuqing Zheng, of the University of Kentucky, and Norbert Wilson of Duke University. They’re co-authors on a research paper entitled Putting Grocery Taxes on the Table, Evidence for Food Security Policy Makers.
Yuqing Zheng is an associate professor at the Department of Agricultural Economics of the University of Kentucky conducting research in food marketing and policies. His main research interests include consumers behaviors, health and food safety economics, and demand studies using big data. He has published papers in American Journal of Agricultural Economics, other field top journals such as Health Economics, Regional Science and Urban Economics, Nicotine & Tobacco Research, as well as Economic Inquiry, Southern Economic Journal, Food Policy, and Economics Letters, among others. He directed the development of the FDA Food Regulation and Enforcement Policy Trade Impact Model (for the Center for Food Safety and Applied Nutrition) and the FDA Tobacco Category Demand Model (for the Center for Tobacco Products) and was a consultant to the development of the recent USDA Trade Impact Model. His paper on sales tax received the 2013 Best Economics Paper Award from the food safety and nutrition section of the Agricultural and Applied Economics Association (AAEA) and he was a recipient of the 2019 AAEA Quality of Communication Award. Dr. Zheng is an associate editor of Tobacco Regulatory Science.
Norbert Wilson is the director of agricultural policy at Duke’s World Food Policy Center, and a professor of food, economics and community in the Divinity School at Duke University. His research touches on several food issues, such as access, choice, and food waste. He continues to work on food safety and quality issues in international trade and domestic food systems. Wilson is an ordained vocational deacon in the Episcopal Church USA. Additionally, his work is moving to explore equity in food access. He has published in AEA Papers and Proceedings, World Development, American Journal of Agricultural Economics, Journal of Public Health, Food Policy, Agricultural Economics, and other publications. Before joining Duke Divinity School, Wilson was a professor of food policy at the Friedman School of Nutrition Science and Policy (2017-2020). He was also a professor of agricultural economics at Auburn University (1999-2016). While at Auburn, Wilson served as a deacon at St. Dunstan’s, the Episcopal Student Center of Auburn University (2011-2016). He was an economist/policy analyst in the Trade Directorate (2004-2006) and the Agriculture Directorate (2001-2002) of the Organization of Economic Development and Cooperation (OECD) in Paris, France. In 2014-2015, Wilson was on sabbatical leave at the Dyson School of Applied Economics and Management at Cornell University.
Why do we need to care about grocery taxes?
Yuqing – For low income populations, it matters a lot. For example, if you’re paying $8,000 a year on grocery bill and you are paying 10%, that’s about $800. And especially for low income population, we are concerned that grocery taxes could be very regressive. That means low income populations are paying a higher share of the burden. That concerns us quite a bit, and we would like to see if the grocery tax is hurting the low income populations the most.
Let me ask a follow up question to that. So, it’s been a while since I’ve seen these numbers, but I know at one point, people in the United States paid the lowest amount per capita of any country in the world for food. So how does that figure into your thinking about this?
Yuqing – For middle income population, they are paying very reasonable share of income, but for low income populations, the burden is much higher. So for some states, if taxes are high, then it can be quite big percentage of a total income.
So Norbert, let’s turn to you. Could you explain why your research team wanted to study grocery taxes?
Norbert – I lived in Alabama for a number of years and there were grocery taxes in the state and they still exist. I had heard a number of community groups express concern about the grocery tax and argue that it was hurting people who were struggling to make ends meet. And so I wondered, were the grocery taxes really that important? Part of the motivation as Yuqing has already made very clear, the grocery tax is a regressive tax that may be a heavy burden on lower income consumers. And the question is, was this really a problem? Do we see a relationship between the grocery tax and one of the measures that we think is really important, food insecurity? And so that’s what motivated this original project.
So where do grocery taxes exist and who gets to decide if groceries are taxed and how large are these taxes in general?
Yuqing – Grocery tax is a sales tax imposed on the grocery food you purchase. So it could be in the form of a county or a state tax. It also could be in the form of combined. Overall, 16 of the U.S. states have grocery taxes. And if you look at these 16 states, the average of grocery tax percentage is about at 4.2%. So I lived in four states before, North Carolina, Alabama, New York and Kentucky. In Alabama, we are paying about a 4% state level taxes and another 4% county level and up to 2% of city taxes. So that’s easily 10% of grocery tax. In North Carolina, in the county where I used to live, it’s about a 2.75% of county grocery taxes. There’s no state level grocery taxes at all. In New York and Kentucky, there are no grocery taxes at all. In Kentucky, I’m paying 6% sales taxes on general merchandise but not food.
That’s very helpful to know, and that’s pretty startling how wide the variability is. So Norbert, what are your main findings from this study?
Norbert – We see that there’s a relationship between the grocery tax and food insecurity. For every 1% increase in the grocery tax, we see a 0.84% increase in the probability of a household being food insecure. So, given the average of a 4.2% grocery tax across the U.S., we would argue that it increases the probability of a household being food insecure a little more than 3%. And so this is a substantial result in that, we are seeing more households that are food insecure in communities where there are grocery taxes. And as you have had on previous podcasts, food insecurity is an important indicator of wellbeing. There are a number of studies that showed that food insecurity is linked to various negative health outcomes. And it’s also associated with issues around behavior, especially among children. And so managing food insecurity can be an important way of helping reduce inequalities in a society. And we’re finding evidence that this grocery tax, at least, is related to the probability of a household being food insecure.
Those are pretty startling numbers and highly impactful, I think. In places where these taxes are being considered, does the impact on food security come up in legislative discussions?
Norbert – It does show up, at least from the people who are advocating for the removal of these policies. But it’s also interesting to note that these are controversial taxes and that many states that have considered or discussed removing the tax are concerned about the loss of revenue and rightly so, and are concerned about them raising new revenue or new taxes to recuperate the lost revenue. And that’s where I think a lot of the challenge comes is it’s difficult for states to make the decision of switching one tax for another.
So let’s talk about the policy implications of this. And I’d love to hear thoughts from both of you.
Yuqing – First, I want to add is that grocery taxes tend to exist in Southern states, where higher food insecurity is more prevalent. So actually, there are some policy discussions recently in West Virginia and the New Mexico, they used to have grocery taxes and they were abolished. And then now they were thinking about bringing it back. So one aspect, I think, tend to be overlooked is, how does reinstating grocery tax impact food insecurity and other health conditions or other counts as well? So this is pretty complicated situation because as Norbert mentioned, if you want to have no grocery taxes, you might want additional revenue sources. For example, in Alabama, it’s a very unique situation. Alabama income tax is very low. And alcohol taxes, tobacco taxes is very low. Property tax is very low, but in order to make up the revenue, that’s why I think the grocery tax is pretty high. The main message right here is when policy makers are thinking about increasing or decreasing grocery taxes, they might want to take into consideration this potential impact. Persons with relatively low income or persons who are on the margin of being food insecure, that’s the outcome we want to print to the policymakers.
Norbert – Just thinking about the well-being of the citizens of a particular community and the issue around food security, repealing the tax may have the potential of lowering some of these burdens. One of the things we should note is that people who are participants in the SNAP program, the Supplemental Nutrition Assistance Program, do not pay the grocery tax on foods that they purchase with SNAP. For those folks, this tax may not be that important except for the times when they are not buying food off of their SNAP benefits. As some of us have seen, SNAP benefits typically do not last a whole month. So while these individuals may avoid paying the tax for, say, three weeks of the month, the last week of the month, they’re facing this. And that means individuals are facing an extra cost associated with purchasing food. And we know that there are a number of responses in order to meet those food needs using charitable food sector, and depending on other resources to help meet food needs. Therefore, if removing a tax could just lessen the burden for families that are already struggling, could just make it a little bit easier, I think that’s a good outcome. I do believe we need to be thoughtful and there have been some states that have removed the tax and replaced it with taxes on other aspects of their economy. So there are some examples out there, and I just encourage policy makers that are considering this to look at other states that have done this successfully, and explore ways that they can remove that tax, if they have the political will to do so.
Let me ask a couple more follow-up questions. So one, how do taxes on specific categories of foods, like soda taxes, figure into your thinking given what you found in this study?
Norbert – Because these are general taxes, they’re taxes on all products. It’s not quite the same as thinking about the soda tax, which is targeted to a particular product, typically, the sugar sweetened beverages, and therefore we don’t equate the two. It is the case, there has been concern about the role that sugar sweetened beverage taxes can impose on individuals who are lower income, that there is a regressivity to those kinds of policies, but those are policies where, if the revenue is then turned around and encouraging other health behaviors, they may not be as burdensome or the long run effects may be different. Grocery taxes, however, are on all foods regardless of the health consequences. And because we need food regardless, placing a tax on that is a burden and it’s unavoidable except in the case of using federal benefits, like the SNAP program. So I’m careful not to equate those two types of policies. They have different purposes, they have different implications. And I think that while there may be levels of regressivity from both, I don’t see them as equals.
Thanks. That’s very helpful clarification. So let’s get as concrete as possible. Let’s say I’m a state legislator in a place that has these taxes and might want to get rid of them, or is thinking about having such taxes, and we want to keep the amount of tax revenue constant. So if I say to you, “Okay, we’ll get rid of the grocery tax”, but how would we get additional revenue coming in from some other form of tax to help correct this disproportionate impact on low income families? What would you recommend?
Norbert – One way of alleviating the burden of the grocery tax is to spread it out across the other taxes. So if we know that the tax rate at the state level is 4.2%, there are probably ways of spreading it across. If the state has an income tax or taxes on cars like tags and other aspects of life, the various sin taxes like cigarettes and alcohol, I can imagine those state legislator making a change where there’s a small increase across multiple tax bases, so that it doesn’t feel like it’s an overly burdensome increase in the tax of one product or one sector of the economy. That way, folks who have higher incomes can carry a little more of that burden than people with lower incomes. So I would argue that there are ways of spreading that tax around, so that it takes that burden off of lower income households that have to buy food. And I think that’s a potential way forward.