Who Pays the Price? The Legal Contours of Eliminating Grocery Taxes in Illinois Cities.

Illinois Governor JB Pritzker has proposed eliminating the state’s grocery tax, calling it “regressive” and unnecessary.  As it stands, Illinois residents pay a 1% tax on their groceries, and the full amount of the proceeds of this tax goes to municipalities.  Illinois is one of only 13 states that impose a grocery tax. Governor Pritzker stated that it is his goal to make life easier for working families and believes that eliminating this tax would help, “even if it only puts a few hundred bucks back in families’ pockets”.  

Impact on Working Families

The math works out to be $1 saved for every $100 spent on groceries, so a family would have to spend at least $30,000 on groceries per year in order to save “a few hundred bucks” on their annual grocery budget, according to a recent report published by the University of Illinois Institute of Government and Public Affairs. The writer of the report, University of Illinois associate economics professor Elizabeth Powers, acknowledged that the grocery tax is indeed regressive and disproportionately impacts lower-income households. Due to this, she further recognizes that grocery taxes are a controversial way for local governments to raise revenue because low-income households spend a much higher share of their income on food than higher-income households do.  The U.S. Bureau of Labor Statistics released data that shows that lower-income families spend 22% of their income on what is called “food at home” expenses, or FAH, while higher-income families spend only 4% of their income on FAH.  This is what makes the grocery tax regressive. The current grocery tax does not apply to foods intended to be eaten immediately, like restaurant meals and takeout, and so FAH is the target.  

Elizabeth Powers explains that the existence of the Supplemental Nutrition Assistance Program for low-income families helps to alleviate some of the economic burden related to food costs because this program is not subject to tax. Therefore, the impact of the grocery tax is felt the most at the lower end of the income bracket but not at the very lowest end.  

Furthermore, according to the report by Powers, the end of the grocery tax would result in only “very modest savings” for families while causing a “consequential” loss of revenue for municipalities, indicating that it may not be worth it after all.  The Illinois Municipal League estimates that Chicago will lose close to $80 million per year, Batavia and Highland Park would each lose around $1 million per year, and Joliet and Orland Park would lose between $2 million and $3 million per year, for example.  

Projected Revenue Losses for Municipalities

The League is requesting information from mayors and local leaders on what their projected revenue losses would be if the tax is eliminated. The hope here is that this would cause lawmakers to rethink this idea and ultimately oppose the plan, given the serious hits to local budgets it would entail. Governor Pritzker has stated that he has a plan to offset this loss. He has suggested that individual municipalities could be given the option to levy their own grocery tax.  

Local governments do not currently have the authority to impose such a tax under Illinois law. In order for them to have it, there would need to be an amendment to state law granting such authority. Another issue arises when it comes to how such taxes would be administered. Would it cost more to have local authorities administer and collect a grocery tax? Any amendment granting this authority would have to take these details into consideration in order to avoid a situation whereupon it actually costs residents more to pay for a local tax than statewide.  

Governor's Support for Local Governments

Governor Pritzker has stated that he believes in investing in local governments but that a grocery tax is not the way to do so. During his tenure, he has worked to increase the share of the state income tax that goes to municipalities, from 6.06% in 2022 to 6.16% and further to 6.47% in 2023.  

He has not proposed compensating local governments for the loss of revenue as he previously had when the grocery tax was suspended for the fiscal year 2023. If this proposed legislation is enacted into law, it would take effect on July 1st of this year, meaning that municipalities would have to scramble to draft their own local offset tax. They would be unlikely to be able to enact it that soon, causing a loss in local revenue for this year regardless of how they choose to proceed.  

Still, a poll by the Illinois Policy Institute shows that 70% of Illinois voters support the elimination of the tax. It is important for people to understand the full picture of what this situation could end up being: local governments may instead choose to raise property taxes to make up the shortfall from the loss of the grocery tax, and this may end up costing residents much more annually.  

Source

https://pantagraph.com/news/state-regional/government-politics