Food tax debate must go forward on equity

While state House Republicans appear to have lost their fight to repeal the 4 percent excise tax on food, medical services and rent, the debate will not — and should not — end there at the Legislature.

Eliminating those taxes at a "cost" of between $100 million to $250 million (depending on which taxes were chopped) was a price the majority Democrats were unwilling to pay.

And they have a point. While the state appears to be coming out of its economic slump, the future is anything but certain. Both the Mainland United States and Japan are hitting harder economic times.

This may well be precisely the wrong time to cut out our most stable and recession-proof tax. In addition, it was unclear what spending cuts or reductions would have been necessary to make up for the lost revenue.

And spending cuts would have been required. The state tax system is not generating surpluses of the magnitude envisioned in these tax cuts.

There is the argument that the tax cuts would not equate to an equal tax "loss" since tax cuts tend to generate extra spending, which in turn creates new tax revenue. This may be true in theory, but how much an impact that theory would have in practice is difficult to fathom.

The big chunk of the cut was the 4 percent tax on food. It seems likely that budget-conscious families who found their food budget increased by 4 percent would likely spend those extra dollars on a little more untaxed food, rather than divert it to other, taxable expenditures.

The strongest case in the Republican argument was that the food tax is regressive, that is, it hurts low-income families the most. Of that, there is no doubt. And that is why the debate must not end here.

Once the budget dust settles, the Legislature would be wise to look closely at the specifics of the impact of the food tax on the least affluent and see how that impact might be offset. For instance, it might make sense to offer direct credits or some other form of tax relief to offset food taxes for the lowest-income brackets. A boost in the earned-income tax credit for lower-income taxpayers is another possibility.

The point here is that while repeal of the food, medical services and rent tax may not make fiscal sense today, the underlying argument of equity and fairness does. That is where the Legislature must take the debate.

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