Saturday, August 25, 2007

The Math of the Grocery Sales Tax Cut

There is a big debate on the grocery sales tax cut proposal linked to raising the taxes on tobacco. As a CPA, I decided to do some research and math on the matter. Unless you are new to the state, Democratic Jamie Franks is for the above proposal and Republican Phil ("Flip Flop Phil") Bryant is against it because of Gov. Haley Barbour (who is vehemently opposed to it). Bryant wants an income tax cut. While Franks has outlined his proposal, which constitutes immediately cutting the grocery sales tax in half and eventually eliminating the tax, Bryant has NOT spelled out his income tax cut proposals.



The median household income in Mississippi is $31330 and for a single person $15853 (This is based on a WASHINGTON POST article covering the Mississippi elections for 2006.). The average family of four spends $150 a week on groceries. A single person spends approximately $40 a week on groceries. Note this does not include head of households, which could range to two individuals in the family to four or five.



By cutting the sales tax in half on groceries, the average household will save $273 a year. If it is eliminated, the savings goes to $546 a year. A single person will save $72.80 and $145.60 respectively.



Since Bryant hasn't spelled out his income tax proposals, let us assume we raise the standard deduction from $2300 to $3500 for singles, $4600 to $7000 for marrieds and the brackets remain the same. Let us also assume the married couple has two children and the parents work. Let us also assume the single and the married couple take only the standard deduction. With the new increase in deductions, the single person will save $48 a year and the average married household will save $89.30 a year. For the break even point to occur on income tax savings to match half the tax cut on groceries, the single standard deduction would have to go from $2300 to $4120. To match the entire tax cut on groceries, the single standard deduction would have to go from $2300 to $6302. For the break even point to occur on income tax savings to match half the tax cut on groceries, the married standard deduction would have to go from $4600 to $13123. Of course, the entire tax cut on groceries would be greater than eliminating their entire tax liability.



I'll admit the math is complicated, but get out the 2006 income tax forms and do the math (Go to http://www.mstc.state.ms.us/ and download the individual income tax forms.). The sales tax elimination on groceries would save a lot of money for the poor and the working class. Our sales tax on groceries is one of the highest in the nation.



Before you think it's a losing proposition in state revenue if more people give up smoking and the sales tax on groceries is eliminated, it will actually make money for the state. What do you think the people will do with that tax savings? They'll spend it on other goods! Surprise! This is the good-old-supply-side-economics that worked during the Reagan years and to a small degree under current President Bush (His gutless father raised taxes which threw the economy into a mild recession.). I thought Bryant would love this. But no, he doesn't. Plus, more people will be inclined to give up tobacco. This will not only save us in Medicaid costs, but that money former smokers don't spend on tobacco will be spent on other goods.



Also, the grocery tax cut would help mitigate the increase in food prices. Maybe it doesn't hurt the rich, but the poor and the working class are feeling it. Milk has climbed to four dollars a gallon! Bread and cereal have shot up. Beef prices have gone up (Thanks to that idiotic ethanol boondoggle, which has greatly increased the price of corn.). This tax cut would give a little relief to the hard-working people of Mississippi.



Don't get me wrong. I would love to see an income tax cut. And an income tax cut would benefit me a lot more than the grocery sales tax cut. So I've got a solution: Eliminate the grocery sales tax and cut income taxes. But if you have to choose, eliminate the grocery sales tax first. The tax is just too much of a burden on the hard-working people of Mississippi (for how crushing the burden is on the poor and working class, check out the data on http://www.cbpp.org/.).



I can't understand why Bryant is supporting the Governor on this. Is he that desperate to be Haley's robot?

2 comments:

Flee said...

"Since Bryant hasn't spelled out his income tax proposals, let us assume we raise the standard deduction from $2300 to $3500 for singles, $4600 to $7000 for marrieds and the brackets remain the same."

In other words, "Let me craft some assumptions here that make this whole point work for me."

Why not, just for simplicity, compare cutting the grocery tax in half with eliminating the first two tax bracket?

Here is what nobody seems willing to say: Sales taxes are the only taxes that some people pay. And I think if some of us are paying taxes, everyone ought to pay taxes to help pay for the roads, police protection, and eduction systems we enjoy.

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