States pause grocery taxes as a hedge against inflation
Some states with taxes in place at the grocery checkout are giving customers a break as food prices continue to rise.
Of the 13 U.S. states that impose grocery taxes, a number have discussed plans to temporarily suspend the tax because of inflation, according to Fox Business. Most recently, Tennessee Governor Bill Lee placed the state’s four percent grocery tax on a 30-day pause at the end of March. Oklahoma and Alabama have discussed a pause on their respective taxes that would last years.
Some U.S. states have moved forward with longer term pauses on grocery tax.
Illinois Governor J.B. Pritzker earlier this month announced the suspension of the one percent grocery tax for the entirety of the fiscal year, according to NBC Chicago.
The grocery industry has been anticipating consumer behavioral change for some time as inflation has risen. Signs earlier in the month indicated that customers were finally limiting spending due to fuel prices.
A pause on grocery taxes in impacted states would theoretically dissuade customers from trading down to value-priced goods on their visits or turning to dollar stores, limited assortment grocery stores and others perceived as offering lower prices than mainstream grocers.
Some experts question, however, if suspending state grocery taxes will have the intended effect.
The Tax Foundation issued an analysis critical of tax state grocery tax reduction proposals, asserting that the cuts could have counterintuitive results, Fox Business reported. While grocery tax cuts may lead to moderate savings for middle-income families, low-income shoppers may find themselves in a worse position as the change may restrict the effectiveness of SNAP benefits and lead to substantial increases in spending on non-food household goods.
As of last week, it cost U.S. consumers 10 percent more to eat at home than it did a year earlier, according to a CNBC report. The cost of eating out at restaurants has only increased 6.9 percent. It remains uncertain how long inflation will keep rising, though the Federal Reserve is expected to continue raising interest rates as an anti-inflationary measure.
- States weigh grocery tax pause as inflation surges, but it may not provide much relief – Fox Business
- Taxpayers to Receive Direct Payments, Grocery Sales Tax to be Suspended as Part of Illinois Budget Deal – NBC Chicago
- Will inflation be positive or negative for off-pricers? – RetailWire
- Rising inflation has made it more expensive to eat at home — here’s how much grocery prices have increased – CNBC
DISCUSSION QUESTIONS: Will a pause on grocery taxes affect consumer purchasing behavior? What are the most effective ways for retailers to maintain sales and margins during an inflationary period like now?