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An Increased Grocery Tax Credit Would Help Idahoans and Preserve State Budgets - Idaho Center for Fiscal Policy
Economic Security, Featured, Reports, Tax & Revenue
In the grocery aisle Idahoans – particularly low and moderate income residents – are feeling the effects of rising prices. We can all agree that everyone needs healthy, affordable food and state policy makers are looking for ways to lighten the load and make food less expensive. This legislative session, concerned policy makers are proposing legislation that either eliminates or offsets Idaho’s state sales tax on food. House Bill 509 seeks to address the issue by increasing the grocery credit, further offsetting the sales tax on food. Other bills seek to remove the grocery sales tax altogether, which would be more costly and potentially threaten vital state services.
Idaho policy makers should consider making House Bill 509 more generous to fully offset the cost of the sales tax on food and also make the credit more targeted so that the Idahoans who need it most would receive the credit. Targeting the credit to Idahoans in the bottom 85 percent of income earners, would be both fiscally prudent and would allow the credit to go into effect more quickly.
Grocery Credit Helps Offset the Sales Tax on Food
The grocery tax credit is aimed at offsetting some or all of the sales tax residents pay on groceries. It is known as a “refundable” tax credit because residents can receive the full value even if they do not owe any state income taxes. The credit helps families with relatively low earnings pay for necessities. The credit currently provides $100 per individual. Idahoans aged 65 and older receive an additional $20. This means a family of two adults and three children receives a credit of $500, while an elderly couple would receive a credit of $240.
House Bill 509: Modest Increase to the Grocery Credit, while Preserving State Revenues
House Bill 509, retains the grocery tax while increasing the grocery tax by $20 to $120 per individual and to $140 for Idahoans 65 and older. Idahoans will not see the increase in the grocery tax credit until they file their 2023 taxes in 2024, a two year lag. The bill would cost $32.4 million, according to its fiscal note. According to the Institute on Taxation and Economic Policy, 70 percent of the benefits going to the bottom 80 percent of earners while the top 20 percent of Idaho households would receive a disproportionately larger share of the tax cut at 30 percent. By preserving the grocery tax and increasing the credit, policy makers would retain a key source of stable revenues for the state of Idaho. The sales tax on groceries helps fund our roads, local governments, and our schools.
Proposals to Eliminate the Grocery Tax Would Be Costly
Several bills proposed in the Idaho Legislature take a step further than House Bill 509, and would eliminate both the tax on groceries altogether, as well as the grocery credit. This policy option is more costly than raising the grocery tax and, according to the Institute on Taxation and Economic Policy, eliminating the grocery tax would result in $90 million in lost revenues – $58 million more than the cost of House Bill 509.
Most Idahoans Qualify for the Grocery Credit
Individuals 65 and older who do not file a tax return because their income doesn’t meet the threshold for filing may claim the full amount of the credit using Idaho State Income Tax Form 24. Idahoans under 65 who typically are not required to file taxes can receive the credit by filling out the Idaho State Income Tax Form 40 for Individuals and claim zero tax liability. While Idahoans of any income level are eligible to claim the credit, participation in the Supplemental Nutrition Assistance Program (SNAP, also known as food stamps) reduces or eliminates the credit. Idahoans who receive SNAP benefits are not eligible to claim the credit for the months in which they receive benefits (the credit is prorated equally for each month). For example, a family of five that received food stamp benefits for four months during a year would see its tax credit reduced from $500 to $333. People who are incarcerated are eligible for the credit only in the months they are not confined. Part-year residents of Idaho are eligible to claim a refund for the months they reside in the state.
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The Idaho Center for Fiscal Policy is a private, not-for-profit, and non-partisan organization committed to high-quality fiscal research and analysis as well as policy leadership. The Idaho Center for Fiscal Policy is a program of Jannus.