Food tax changes won't make much of a difference

Posted: Friday, October 10, 2008

I love living in Soldotna, except for one thing: the sales tax on unprepared food.

A sales tax on unprepared foods places the burden of supporting the city of Soldotna's infrastructure on those least able to support and least likely to benefit from it.

And ironically enough, in defending the sales tax with the argument that property taxes would have to go up, proponents actually said we must continue to disproportionately tax the poor so we don't have to raise taxes on expensive properties, i.e., the rich.

Expenditures on food, especially unprepared food like flour, beans, sugar, spices and the like, are a greater percentage of income for people with low incomes. That is, more of their income goes to food. Therefore, the tax paid on the food is a greater portion of their income, which is the very definition of a regressive tax.

To illustrate, assume someone spends $200 per week on food. That is $10,400 per year on food. At 6 percent, that is $624 per year in taxes alone -- or more than three weeks worth of groceries.

Now, it is accepted among economists, both liberal and conservative ends of the spectrum, that expenditures on food do not increase proportionate to income. Just because someone starts making twice the money does not mean they start buying twice as much food.

Quite the contrary. At higher income levels, food expenditures (especially unprepared food) comprise less and less of income as a percentage of income.

For example, if some one is making $30,000/year and spends $200/week on groceries, then sales tax as a percentage of income is a little over 2 percent. Doesn't sound like much. But someone making $100,000/year and spending $400/week on groceries (which isn't cutting any corners and easily realistic) is paying $1,248 in sales tax or barely 1 percent of income.

Granted, the person with the higher income is sacrificing (theoretically) more weeks of groceries, but if we assume $200 is a baseline of what must be purchased, then the tax isn't causing much hardship.

Now the justification for taxing unprepared foods is to capture revenue from tourists who travel up here in RVs and don't spend enough in the shops and restaurants. How many RVers are making bread or cooking up beans in their RVs? Exactly how much "unprepared" food are they buying? Little.

If Soldotna is building its infrastructure on a tax that pulls more from those who can afford it least and benefit least from those services, then perhaps we need to reconsider that infrastructure.

Sheryl Nelson


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