The Success of SNAP (Food Stamps) and the Desirability of Taxing Food
July 16, 2015
Most states either totally or partially exclude food at home from the general sales tax. This exclusion generates a debate between tax policy analysts with their emphasis on broad base, low-rate tax systems against the advocates for the poor who argue that the exemption for food is necessary on distributional grounds. States that tax food at home are often singled out as having particularly regressive and punitive tax systems. What is missing from this debate is a serious discussion of the consequences of non-taxability of benefits under the Supplemental Nutritional Assistance Program (food stamps).
Ana L. Johnson and Steven M. Sheffrin of Tulane University find:
- The SNAP program effectively reaches the vast majority of the poor thus making the taxability of food at home much less important for individuals in lower income tiers.
- The non-taxability of SNAP benefits reduces the regressivity of the sales tax in states that tax food. In Alabama, the effective tax rates as measured by consumption for four income categories are 2.6 percent, 3.2 percent, 3.8 percent, and 4.2 percent after accounting for SNAP.
In general, broadening the sales tax rate to include food at home and lowering the rate will help the poor with their SNAP benefits. Overall, including food at home in the sales tax base with a correspondent adjustment of the overall tax rate would be a beneficial change.
Source: Ana L. Johnson and Steven M. Sheffrin, "The Success of SNAP (Food Stamps) and the Desirability of Taxing Food," Tulane University, April 21, 2015.
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