Should Groceries Be Exempt from Sales Taxes?

Source: National Review.

Well, should they?

The question, “What should be taxed, and why?” is one of the most basic questions in economics. My own view is that a government which can create money out of thin air doesn’t really need to impose taxes, it can just create the money it wants to spend (within limits, of course). The source article, however, challenges a different assumption that some economists make: The idea that taxing groceries harms the poor more than it harms the rich.

According to this assumption, a poor person spends a larger portion of income on groceries than a rich person; therefore a flat tax on groceries exerts a greater proportional burden on the poor than on the rich. Putting aside logical pitfalls in this line of reasoning, it turns out that in practice grocery taxes don’t harm the poor unfairly at all, according to the article:

• First, the poor who receive food stamps don’t pay sales tax for groceries, anyway; no need to cancel grocery taxes for them.
• Second, poor and rich grocery buyers tend to buy different things, such that the poor get “more food per dollar” than do the rich. To see how this can happen, think about fried chicken. On a per-piece basis, it is actually cheaper to buy fried chicken ready made than to buy all the ingredients to make it yourself.
• Finally, if groceries aren’t taxed, then other taxes the poor must pay may need to rise to make up the difference. And should that happen, the poor could be worse off, based on their ratio of grocery spending to other spending on necessities.

The point is, what looks like simple math — in this case the “progressivity” of the tax code, or lack thereof — doesn’t necessarily work out as simple Truth. Karl Marx made a similar mistake when he complained that workers deserve a share of profits based on their proportional contribution to the production of goods in a going concern.