A sign on the black metal door barricading Jim Ayers' spartan room at the Lawrence Hotel on Sixth Street reads "Don't knock on this door for nothing." The portal is a point of pride for Ayers, a retired sixtysomething ironworker and bartender who has lived behind it for 21 years. "I'm the only one here who has a steel door," he notes. "The only one."

Ayers lives off $909 a month. By the time he's paid rent, utilities, fuel for his truck — which he dutifully moves in the pre-dawn hours every night to avoid parking tickets — he doesn't have much left. He also doesn't have a kitchen, so you'll find him in a Tenderloin restaurant more days than not. Ayers gives a spirited rundown of the slings and arrows of the fare offered by local eateries; he knows them all and they all know him. Money's tight, naturally — but that's okay, Ayers says wearily. He can get by on two meals a day. Of course, he's being taxed on those two meals. "I just don't understand why I should be taxed for food that is cooked, yet I can have the same thing that's cold and not even prepared and I'll pay less," he says. "I just don't get it."

Neither does Richard Pomp — and he literally wrote the book on this. (State and Local Taxation is now in its seventh edition.) The University of Connecticut law professor probably spends Ayers' yearly income on "coffee picked on the mountaintops of Papua New Guinea by virgins, cheeses that look like they were deported from foreign countries after being used for medical research, and tiny Japanese mushrooms with unpronounceable names" — none of which is taxed at the high-end grocery stores Pomp frequents. He earns a good living. The vagrants he sees eating burgers in fast food parking lots do not. "Why should I not pay any sales tax and they should?" asks the professor. Allowing the Richard Pomps of the world to skate on paying sales taxes to supposedly benefit Jim Ayers — while taxing Ayers — is "probably the silliest of all approaches," Pomp notes.

With no kitchen in his room, Jim Ayers is in a Tenderloin restaurant most days — getting taxed.
Joe Eskenazi
With no kitchen in his room, Jim Ayers is in a Tenderloin restaurant most days — getting taxed.

The silliness extends beyond necessitating an overarching bureaucracy to determine the tax status of the Icee ("a carbonated beverage and ... therefore subject to tax") and dinging impoverished people forking over spare change for Big Macs. The 20 to 25 percent sales tax revenue losses states incur by exempting food are massive — and the way to make up for those lost billions is to raise the overall sales tax rates. The poor, intuitively, spend an oversize portion of their money on food. But they also buy clothes, books, and steel doors — and now pay an accordingly higher rate of sales tax on it.

A state with myriad tax exemptions and a high sales tax rate is essentially gambling more chips on fewer slots — meaning California's official policy is "exactly the reverse of what we teach in taxation courses," notes Indiana University's Mikesell. Not surprisingly, high tax rates collected on limited items lead to fluctuating, unpredictable returns — and render states vulnerable to economic swings. Professor Bill Fox, the director of the University of Tennessee's Center for Business and Economic Research, points out that states' tax revenues have grown far more unstable in recent decades — "right when sales tax was taken off food in many states.... What was done is a fairly stable tax structure was taken out of the base, and that made it more volatile."

As Californians know all too well, this sort of volatility leads the government to establish spending commitments based on rosy projected revenue streams that, following the onset of bad times, quickly become the subject of nostalgia. We'll give you one guess as to who suffers in this scenario — and it's not rich people.

A shotgun approach to food taxation that allows everyone to partake in benefits intended for the poor — while states hack apart the social safety net — may not be "regressive." But it is perverse. "What's sensible is to tax food — and then give the money back to the truly needy," says Pomp. To do so, adds Fox, "is much more effective — we can aim right at the people we care about."

When asked where states should look for inspiration, Fox can answer in one word: Aloha.


Hawaii has plenty going for it — the sun, the surf, the Spam sushi. But the real paradise — at least according to a subset of economists and number-crunchers — is its general excise tax. Singing "Tiny Bubbles in the Wine" kept Hawaiian musician Don Ho employed for life. But Hawaiian state attorneys have been spared the chore of discerning the taxable status of carbonated alcoholic beverages. Arcane rules regarding hot chocolate's taxability don't apply in Hawaii either. "You don't have to guess as to what's taxable and what's not," notes Cathy Tokishi, an information specialist for Hawaii's Department of Taxation. "Most things are." Champagne is. Cocoa is. And so is food.

As a result, the state doesn't have to create volumes of labyrinthine regulations, riddle them with confusing exemptions, and impose the system upon retailers. Retailers simply pay a percentage of their gross revenue. Because Hawaii's sales tax base is so broad, its corresponding rate is very low: 4 percent. And residents qualifying as "low-income" receive all or much of their estimated food expenditures back through an income tax credit — a system similar to those in Idaho, Kansas, Oklahoma, and South Dakota. "This is a way you can direct the relief to the people you really want to," notes Mikesell. And you can use the rest — billions of dollars — to run the state.

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7 comments
withkaden
withkaden

Looks like it swallowed my previous comment.  Well, anyway, it's all taxable in Kansas - at 8.3% - NOT cheap.  And they rescinded the food sales tax rebate for low-income earners this year.  THAT'S hurting the poor.  I so miss California.

obbop
obbop

"There's class warfare, all right, Mr. (Warren) Buffett said, but it's my class, the rich class, that's making war, and we're winning"

"My friends and I have been coddled long enough by a billionaire-friendly Congress." - Billionaire Warren Buffett, in a New York Times op-ed on Aug. 15.

There has been class warfare going on," Buffett, 81, said in a Sept. 30 interview with Charlie Rose on PBS. It's just that my class is winning. And my class isn't just winning, I mean we're killing them."

Obey your ruling-class commoners and corporate USA, etc. you vile scum commoners.

OBEY!!!!!!!!!!!!!!

CarlsbadVillageOrthodontist
CarlsbadVillageOrthodontist

One really has to read the fine print, especially when it concerns the law and taxes. I never knew that food taxes are this complicated. Though, I guess in a way the less fortunate can have a little respite with food stamps?

anadromic
anadromic

For the TLDR crowd:

Hot, prepared food is taxed. Food you take home or cold food prepared in advance is not. As anyone would expect, life is not simple and there are gray areas between these categories. Many cases need to be considered and decided on their own, often in a less-than-perfect way.

anadromic
anadromic

Actually, I don't mean to hate so much. It's an interesting piece. But the "penalizes the poor and benefits the rich" subhed? Meh. That's a stretch, dude.

Dave Lieberman
Dave Lieberman

Look up the phrase "food desert" and you'll see why this system penalizes the poor. When all you have nearby is convenience stores and restaurants, nearly everything you buy is taxed.

I fail to see why we can't tax food, even at a lower rate, and specifically require that EFTPOS (food stamp) purchases be exempt.

Joe Eskenazi
Joe Eskenazi

Dave --

Thanks for reading and an erudite comment.

Food stamp purchases are already tax-free, even in states that tax food.

Best,

JE

 

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