Governor Huckabee doesn't think people ought to pay to pay taxes on groceries and plans to do something about it. I agree with him, but I just don't like his plan, which is to give a rebate to every man, woman and child in Arkansas at a cost of up to $120 million a year.
Granted, his plan has improved. At first he wanted to exclude prison inmates and everyone getting food stamps, but he found out that even food stamp recipients have to buy some groceries. So in the proposal he has just given the legislature, only convicts are excluded.
Initially, everyone would have gotten a check for a fixed amount--$25 or $50. Under the new plan, a check will be sent the first year, but after that, state income tax payers will simply deduct the amount from their tax bill. The 200,000 or so too poor to pay income tax will still get a check.
I believe that the simplest thing to do is just exempt groceries from the sales tax. Sure, it would cost the state treasury more, but you wouldn't have to pay postage or people to cut checks and stuff the envelopes.
However, the Department of Finance and Administration says that eliminating the tax on groceries would complicate life for groceries. They would have to collect the state tax only on the non-food items (paper towels, light globes, etc.) city and county sales taxes on everything. (Local sales taxes can't be eliminated because many cities and counties have pledged this revenue to pay off bond issues.)
The department asserts that its expenses would be about the same either way. Rebates would require salaries and postage but interest collected on earmarked rebate money would cover some of it, and while it sounds simpler just to repeal the state sales tax, it would make auditing the grocers more complicated and therefore more expensive.
I'm not convinced. Nor is a CPA friend who sheds no tears from the grocers' problems. "Machines do the work," he says. Besides, grocers get paid 2 percent to collect the taxes for the state. Incidentally, of the 46 states that levy a sales tax, 20 give no percentage of the tax take to the merchants who collect it. Why should Arkansas?
What makes me suspicious of mass rebates is that there's only one state, Hawaii, that does it. It's such a grand political idea (imagine getting a check from the governor every year) that if it worked, I'd think other states would be doing it.
New Mexico used to but abandoned it in 1994 for an even bigger program: a comprehensive income tax credit for all taxes, groceries, property, licenses, gasoline, etc. But it goes only to those whose income is below $16,000.
"This is the right way to do it," according to Laird Graeser, director of tax research and statistics for New Mexico. "It's much better than the old system because you target the people you really want to help." The credit averages about $125 per person, with a maximum of $450 to any one family.
It's admirable to take the tax off groceries. To make up for the loss of revenue, we could simply raise the sales tax; ours is the 34th lowest in the country (4.625 cents on the dollar) and needs rounding off anyway.
But if the governor persuades legislators to pass a rebate, it should go only to the poor. Why give back $25 every year to people like Win Rockefeller? Rich people spend a lot more on groceries, and that's the only thing that makes the sales tax the least bit progressive.
Print headline: "Flaws in Huckabee rebate" December 13, 1996.