Should Illinois Eliminate the State Grocery Tax?

Powers, Elizabeth T.

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https://hdl.handle.net/2142/123552 Copy

Description

Title

Should Illinois Eliminate the State Grocery Tax?

Author(s)

Powers, Elizabeth T.

Issue Date

2024-04-11

Keyword(s)

• grocery tax
• state tax income
• Supplemental Nutrition Assistance Program (SNAP)
• Illinois

Geographic Coverage

Illinois

Abstract

Illinois and 13 other states impose a sales tax on groceries. Foods subject to the state’s 1% grocery tax are generally healthier than alternatives such as junk and restaurant foods, yet they are taxed more heavily. Illinois Governor J.B. Pritzker proposes to eliminate the grocery tax in his state fiscal year 2025 budget, but policymakers and advocates have two important concerns. First, since food purchases make up a higher share of lower-income household’s budgets compared to better-off households, the tax has been criticized for being highly regressive. But it is important to note that the grocery purchases of SNAP participants, who are the lowest-income households, are exempt from tax. While this means that the grocery tax is not regressive from the perspective of the poorest families, it is the case that lower- and middle-income families pay a higher share of their incomes to grocery taxes than the top 40% of households by income. Second, when groceries are taxed, this raises their cost relative to less healthy junk and restaurant foods. A rigorous study indicates only a very small percentage of people shift away from food at home due to grocery taxes. The tax has much less impact than popularly portrayed since grocery purchases are actually very low. However, many Illinois municipalities rely on the grocery tax as part of their revenue. Governor Pritzker does not propose a way of recouping this lost revenue, nor give local governments much time to implement a solution for the proposed July 1 tax elimination date. There are several reasons why it may be difficult for local governments to replace the grocery tax in a timely fashion and it's important to note that alternatives to the grocery tax may be even worse in their regressivity.

Type of Resource

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