Lower Taxes - Period:
The Right Way to End the Food Tax
By Harry Messenheimer, Ph.D.
President, Rio Grande Foundation
Eliminating the tax on groceries is not a bad idea. In fact, any tax
reduction is probably a good idea in New Mexico. But we need to be realistic:
eliminating the tax on groceries will not "reduce hunger" by
any appreciable amount. And when coupled with tax increases meant to recapture
lost revenues, ending the tax on groceries does more harm than good.
Two bills were introduced in February 2000 to end the tax on groceries.
But coupled with the first bill is an increase in the excise tax on cigarettes
by 60 cents per pack. Coupled with the second is an increase in the excise
tax on cigarettes by 25 cents per pack and an increase in the overall
statewide Gross Receipts Tax rate by one-quarter of one percent.
The intent of the bills was to aid the poor and hungry. But neither would
do so. Since a disproportionate number of low-income people smoke, the
harm imposed on them would more than offset the benefits from not paying
the tax on groceries. The higher taxes on cigarettes would be even more
regressive than the existing tax on groceries. In essence, the bills merely
transfer wealth from smokers to nonsmokers.
Moreover, the new cigarette taxes would not raise nearly enough revenue
to offset revenue lost from ending the tax on groceries. Since cigarettes
are readily available in other jurisdictions (Indian land, other states),
cigarette consumers would shift a large portion of their purchases to
where they would avoid the higher New Mexico tax. Consequently other taxes
would have to be increased if the bills are to remain "revenue neutral."
Supporters of the bills alarmingly assert existence of a serious hunger
problem in New Mexico. But they do so by relying on a controversial U.S.
Department of Agriculture study and its update. The Department actually
surveys a murky concept called "food insecurity," not hunger.
Other studies of hunger itself conclude that nutrition levels, particularly
among children, are affected very little by income. Even the data on purchase
of groceries supplied by the bills' supporters implicitly deny a hunger
problem: Poor people spend a small portion of their income on groceries;
and as their income increases they tend to spend less and less for groceries
out of each extra dollar of income.
There is a small extent to which the bills would induce consumers to
purchase more groceries. But the extra groceries purchased would substitute
mostly for already prepared food (such as fast food and restaurant food).
Consequently there would be no noticeable improvement in nutrition among
Claimed tangential benefits from increasing the tax on cigarettes will
not be realized either. Health care costs will not be lowered, and sin
taxes are not an effective way to reduce problems of smoking and alcohol
use among our youngsters. Health care costs will not be lowered because
the earlier mortality of smokers tends to reduce nursing home and pension
costs more than enough to offset smokers' comparatively higher health
care costs. To the extent that it is really an issue of public policy
(rather than parental guidance), reducing the perceived problem of youth
smoking would be better dealt with by directly penalizing youth smoking
or the parents of youth smokers.
New Mexico is a poor state compared to others, falling near the bottom
of most rankings. Moreover, the past 15 to 20 years have seen New Mexico
record the slowest growth of per capita income among the lower 48 states.
Bills such as those "ending the tax on groceries" (while quietly
raising other taxes) come out with great fanfare, claiming that
we are doing something to help our poor and make life better.
Yet these bills do not address the real problem and, in fact, would only
make matters worse. Too much government interference (in the form of high
taxes, regulation and disincentives to work) is the problem. What we need
is real tax, regulatory and welfare reform, not just window dressing disguised
as lowering taxes. Specifically, if we want to join those states with
higher growth rates, we need more economic freedom in the form of lower
tax rates, less regulation and smaller government. In that spirit the
Rio Grande Foundation would embrace ending the tax on groceries as
long as no other taxes are increased.
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