In an age of polarization, there’s one thing that can unite liberals and conservatives.
And that’s getting rid of Alabama’s tax on groceries.
The left-leaning Alabama Arise and the right-leaning Alabama Policy Institute (API) will both lobby legislators in the upcoming session to reduce or repeal the tax, which, with local sales taxes included, can add up to 10% to the cost of groceries in the state.
But if their goals are the same, their reasons differ. API sees the grocery tax effort as part of a broader attempt to reduce taxes for Alabamians.
“It had about a $1.5 billion surplus last year, so the state is taking in more taxes than it ever has before, and we really think, at least some portion of that, a large portion of that needs to be returned to taxpayers,” said Justin Bogie, senior director of fiscal policy for the Alabama Policy Institute.
Alabama Arise says the tax harms vulnerable families by increasing the cost of food.
“This is an issue of fundamental justice,” said Chris Sanders, communications director with Alabama Arise. “This is an issue that knows no partisan lines. Food is not optional. Everyone has to eat to survive, so that means the grocery tax is a tax on survival.”
A household in Alabama that purchases $500 of groceries a month could pay $50 in taxes on that food.
But repealing the tax has been difficult. The tax provides hundreds of millions of dollars to the state’s education budget, and previous efforts at repeal have floundered on questions of how or whether to replace that revenue.
Alabama has taxed groceries since the state sales tax was first levied in 1939. The tax applies to any food item that is not preprepared, such as meat and vegetables. It works like any other tax levied on other consumption items, from television sets to furniture.
But consumers can choose not to buy televisions. That’s not an option with food.
“It is attractive because it is a stable revenue source,” said Lucy Dadayan, a principal research associate with the Urban Institute, a Washington, DC-based nonprofit that has researched similar taxes. “Even during an economic downturn that we witnessed during the pandemic, when we had the lockdowns, people were not spending money, but they still spent money on grocery food. No matter what, people still have to eat and have to buy grocery food.”
Fully taxing groceries
Alabama is an outlier in taxing groceries. According to the Urban Institute, it is one of only 13 states in the nation that tax food. The tax rates vary. Arkansas charges just over one-tenth of 1%. Mississippi charges 7%.
Some states try to alleviate the burden. Idaho offers a credit of about $100 a person to offset its 6% sales tax. But Alabama, along with Mississippi and South Dakota, fully taxes groceries without any relief.
Staff at the Alabama Policy Institute have included a repeal of the grocery tax in the group’s platform for the coming legislative session. They want to abolish the grocery tax; reduce the state’s corporate income tax rate, and repeal a provision of the 2019 gas tax increase that could increase it by a penny every two years, based on a national index of highway construction costs.
Arise’s Sanders said sales taxes are generally regressive. With inflation driving food costs up, the tax on food becomes especially burdensome.
“Take a family who makes $20,000 a year,” he said. “Every dollar, every cent that they make is being used on essentials, on necessities to sustain themselves. That is not the case for someone who is making $200,000 a year.”
Other states have made up for lost grocery tax revenue by increasing other levies.
“States that have done it right have increased their income tax in progressive ways, making sure those on the top of the income scale pay more or pay their fair share,” said Eric Figueroa, senior manager for strategic projects and initiatives for the Center on Budget and Policy Priorities, a nonprofit based in Washington DC. “Making the tax code a bit fairer in the process.”
Adjusting the income tax in Alabama is difficult. The state’s income tax rates were set by a 1933 constitutional amendment, and doing anything to them would require a second amendment, requiring both the approval of the Legislature and of voters statewide.
“Our tax system is upside down,” Sanders said. “Statistically, the less you make, the more you pay as a share of your income in state and local taxes.”
In recent years, some advocates have called for the repeal of a 1965 amendment that allowed people who owe money to the federal government to write off the loss on their state taxes. The provision heavily benefits the wealthy, who are more likely to owe taxes to the federal government.
“It is antiquated,” Sanders said. “Most states have gotten rid of it because it just does not make sense. It is overwhelmingly skewed to benefit the richest households.”
Both the Alabama Policy Institute and Alabama Arise want to repeal the tax deduction that Alabama allows for federal income tax, but Alabama Arise wants to use the money from the federal tax deduction.
Getting rid of the provision would also require a constitutional amendment.
“We have done hard work before and we are not afraid of hard work,” Sanders said.