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Economist: Lower Taxes on Groceries by Closing Tax Loopholes

July 20, 2010

NASHVILLE, Tenn. - Lower-income Tennesseans pay out a larger percentage of their income for groceries than do more affluent consumers, as is often pointed out in discussions about lowering the sales tax on groceries. However, lifting that burden is difficult economically and politically, according to Dr. David Penn, director of Middle Tennessee State University's Business and Economic Research Center.

He explains that there is a hidden "upside" of such a change in tax policy that should be part of the discussion because it could help the economy by boosting buying power.

"So many households are in desperate straits right now, it would be helpful to help them along through these difficult times. It's a real tough question."

Penn says another issue for the sales tax on food is a challenge in collection, with people crossing state lines or buying online to dodge the tax. He suggests that a lower tax might change those behaviors.

Penn says vigilance in collecting taxes has to be part of the equation.

"The higher the sales tax rate locally, the more incentive there is to buy things online where you're not charged."

According to some experts, more vigorous collection of sales tax on catalog and Internet sales could make up the approximately $600 million the state would lose in revenue by reducing the sales tax on food by a half percentage point.

Randy O'Brien, Public News Service - TN