Who’s still taxing groceries?

KA-CHING, KA-CHING: Politicians and consumer alike are still paying a lot of attention to inflation — just catch how GOP lawmakers responded on Friday, after the Bureau of Economic Analysis’ latest report on personal consumption expenditures showed a healthy jump in prices.

Staples at the supermarket are among those items where the costs keep rising. So why then hasn’t cutting grocery taxes been more of a priority in the various state legislative sessions happening around the country?

Well, that’s kind of a trick question: Only about a quarter of states actually have a grocery tax on the books. And in a good number of those states, the grocery tax actually is a pressing topic for lawmakers these days.

Take South Dakota, where the Republican governor, Kristi Noem, wants to fully exempt groceries from the state’s 4.5 percent sales tax.

Keep in mind: South Dakota, which doesn’t have a state income tax, is very reliant on the sales tax for revenues. But Noem argues that the state is in such sound fiscal shape that the budget can absorb what would amount to a $100 million tax cut, the biggest in South Dakota’s history.

A House committee already cleared a sales tax elimination bill, and even some Democrats in the GOP-dominated legislature are interested in sales tax relief. But some Republican lawmakers, particularly in the Senate, are concerned about full repeal, as are retail advocates in the state — so it’s far from clear how this will all end in South Dakota.

MORE ON THIS IN A BIT. But, first, thanks for coming back for more Weekly Tax — where, honestly, we’re just glad our favorite viral Philadelphia sports fan is still doing his thing.

Going on eight decades of being thrown in the fountain: Today marks 77 years since the U.S. released the current edition of the dime — featuring the face of President Franklin D. Roosevelt, who had died less than a year earlier.

We can’t actually give you a penny for your thoughts. But we’d love to hear them anyway.

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BACK TO THE STORE: Here’s another good reason that the grocery tax isn’t front-and-center this year — a good number of those dozen or so states still in the grocery tax business offered some relief during 2022, which was essentially those legislatures’ first shot to respond to rising inflation.

Illinois, for instance, is currently in the middle of a one-year freeze of the grocery tax, while Tennessee paused its grocery tax for a month last year.

Meanwhile, officials in Virginia got rid of a 1.5 percent state levy, while keeping a 1 percent tax where the revenues go directly to localities. Across the country, Idaho expanded a grocery tax credit last year in a big GOP tax bill, but stopped short of cutting the state’s grocery tax.

Which isn’t to say this particular tax isn’t on the agenda anywhere: Kansas is currently phasing out its tax on groceries, which was a priority last year for Gov. Laura Kelly. But now that the Democratic governor has won re-election, she wants to get rid of the grocery tax immediately, and is battling GOP lawmakers more interested in cutting the state’s income tax.

Bottom line: You can see why the good politics would have nudged dozens of states to get rid of grocery taxes even before this latest round of inflation. You can also see why the states that still taxed groceries started looking for relief last year, particularly given how flush many of them were with surpluses.

But it’s worth noting that budget experts on both the right and the left have their qualms about grocery tax cuts. In fact, analysts from across the ideological spectrum have suggested that tax credits might be a better way to cut taxes on groceries in a progressive way.

And for liberals in particular — grocery tax cuts might be preferable to cutting income tax rates and other popular tax-cutting methods in the states. But losing that revenue can also mean less money for spending priorities favored by Democrats, too.

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A TALE OF TWO CHAIRS: Washington’s efforts to raise the debt limit are proceeding cautiously right now, though House Speaker Kevin McCarthy did say on CBS’s “Face the Nation” that he’d be meeting with President Joe Biden on the matter this week.

One of the big questions: How much longer until the House GOP has to start showing its hand on what kind of budget restraints it might want in exchange for raising the debt ceiling?

And the answer is not too long, as Pro Budget’s Caitlin Emma reported — because the House is going to have to pass a budget pretty soon.

That’ll be a big task for House Budget Chair Jodey Arrington (R-Texas), given the GOP’s very narrow majority.

But it’s also true that a budget’s policy prescriptions can come in fairly broad strokes. And from a tax perspective, Republican lawmakers have been pretty upfront about their goals for this year and in the near term — extending all of the individual cuts from their 2017 tax law, which are set to expire at the end of 2025.

Though also worth noting: Republicans own a good portion of their new majority to New York, which now has two GOP seats on Ways and Means and where there is bipartisan interest in at least chipping away at the $10,000 cap on state and local deductions.

To Ways and Means: It’s fair to say that the D.C. tax community still is trying to figure out how Ways and Means Chair Jason Smith’s agenda will differ from previous Republicans who held the gavel.

Smith (R-Mo.) at least sounds different from Republicans in discussing the new corporate minimum tax, showing no interest at all in trying to roll back a tax that hits only the biggest corporations in the U.S.

The new Ways and Means chair has targeted businesses in other ways too, as Tax Notes’ Marty Sullivan noted, pointing to a 2021 proposal that would limit higher-earning businesses from getting tax credits for electric vehicles.

Still, it remains to be seen whether the differences between Smith and his predecessors will be more stylistic than anything else, with the new chair more willing to openly criticize corporate America.

For instance, Smith did sign on to a letter last year that called for bringing back immediate expensing for research costs, a top priority for a range of industries.

Around the World

BBC: “Jeremy Hunt says significant tax cuts in Budget unlikely.”

From our team in Europe: “Rishi Sunak fires minister Nadhim Zahawi after tax investigation.”

Reuters: “Philippines to offer value-added tax refund to foreign tourists by 2024.”

Around the Nation

Portland Press-Herald: “Time seems ripe for bipartisan action on income tax cuts in Maine.”

Omaha World-Herald: “Pillen income tax rate cuts could benefit at least half of Nebraska tax filers.”

WV MetroNews: “Governor’s tax road trip rolls on – and so do Senate questions.”

Also Worth Your Time

Pro Tax: “Neal announces Democratic membership of Ways and Means.”

Bloomberg Tax: “Pricey SUVs Are Flashpoint as US Reworks Tax Incentives for EVs.”

Military.com: “Military Families Worried About Tax Bills After W-2s Show No Income Tax Withheld.”

Did You Know?

The FDR dime was released on what would have been Franklin Roosevelt’s 64th birthday.