Rethinking the Sales Tax Food Exclusion with SNAP Benefits

State Tax Notes, January 11, 2016, 149-58

10 Pages Posted: 23 Apr 2015 Last revised: 12 Jan 2016

Date Written: November 30, 2015

Abstract

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 do 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). We present evidence that 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. Based on calculations using the Consumer Expenditure Survey, we show that the non-taxability of SNAP benefits reduces the regressivity of the sales tax in states that tax food. Overall, including food at home in the sales tax base with a correspondent adjustment of the overall tax rate would be a beneficial change. The paper concludes with a discussion of the political and economic dimensions which may lead food at home to be excluded from the tax base.

Keywords: sales tax, food exemption, SNAP, food stamps

JEL Classification: H71, H24, H58

Suggested Citation

Sheffrin, Steven M. and Johnson, Anna, Rethinking the Sales Tax Food Exclusion with SNAP Benefits (November 30, 2015). State Tax Notes, January 11, 2016, 149-58, Available at SSRN: https://ssrn.com/abstract=2597228 or http://dx.doi.org/10.2139/ssrn.2597228

Steven M. Sheffrin (Contact Author)

Tulane University ( email )

New Orleans, LA 70118
United States

Anna Johnson

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

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