A new advocacy effort is urging state policymakers to create a sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. for breastfeeding supplies. Proponents make two key arguments: (1) that it’s unfair to apply the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to breast pumps if formula enjoys an exemption, and (2) pumping supplies should not be taxed since they’re a necessity for most nursing mothers. While proposed with good intentions, such an exemption would depart from the principles of sound taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy.
To start, it’s important to keep in mind that there is no state that imposes a product-specific tax on breast pumps; what we’re debating here is simply the general sales tax, and whether breastfeeding supplies should receive special treatment.
It’s true that many states exempt “food and food ingredients” from their sales tax, and in most instances, that definition captures baby food and formula. It’s also true that grocery exemptions are usually states’ most costly sales tax exemption and one of the biggest contributors to states having narrower-than-ideal sales tax bases, which puts upward pressure on the sales tax rate that applies to goods that are taxable (including many goods that can also be classified as necessities). But the way to fix improper sales tax treatment is not to make it worse.
While a sales tax exemption for breastfeeding supplies would cost relatively little to states in terms of additional revenue lost, it would be a step in the wrong direction. Every time states create new sales tax exemptions, tax bases become narrower, tax codes become more complex, and retailers face compliance costs in changing how they code individual products. This narrowing of the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. has to be paid for somehow, whether through spending reductions or tax rate increases.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.Subscribe
In the case of an exemption for breast pumps and supplies, it’s unclear how far such an exemption would go. Would replacement pumping bottles be exempt when purchased separately from pumps? If so, would pumping bottles be exempt while other baby bottles remain taxable? What about tote bags and coolers to transport breastfeeding supplies and milk? These are all questions policymakers would have to consider, and narrowly tailored definitions would have to be formulated to make these distinctions.
The “necessity” argument also creates a slippery slope. If breastfeeding supplies receive an exemption under the justification that they are a necessity, where does necessity end and non-necessity begin? Wouldn’t most parents of babies also consider car seats and cribs and strollers to be necessities?
The necessity argument has long been used to justify many sales tax exemptions across states–from food to clothes to feminine hygiene products to diapers–and each new exemption contributes to the erosion of sales tax bases over time. As there are any number of goods (and services) that different consumers would deem essential, creating new sales tax exemptions isn’t a reasonable way to promote tax fairness. The propensity to exempt necessities makes sales tax revenue less stable, especially during economic downturns, which in turn puts strain on states’ ability to fund basic government services.
In debating the taxation of breast pumps, it’s important to point out that the Patient Protection and Affordable Care Act requires health insurance plans to cover the costs of “breastfeeding support, counseling, and equipment for the duration of breastfeeding,” including the purchase or rental of a breast pump. In addition, many lower-income women can access a breast pump through Medicaid or the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). While many women choose to purchase additional pumps and supplies out-of-pocket, a sizable share of these purchases are made by higher-income women as a matter of convenience. By using a blanket exemption, both high- and low-income women benefit.
If the goal is to relieve the tax burden on lower-income women and families, one reasonable approach would be to offer targeted tax relief to those who need it most. The Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. (EITC) is an example of a refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit (EITC). that can be used to help offset sales taxes paid by lower-income consumers. This is a better, more efficient approach than exempting broad categories of goods.
While mitigating tax burdens is an admirable goal, product-specific sales tax exemptions are not a good solution: they are neither neutral nor simple, and they do not enhance revenue stability. Instead, a well-structured sales tax can be one of the most stable sources of state tax revenue. When applied to a broad base at a low rate, the sales tax treats all taxpayers more fairly. If the goal is to achieve tax fairness and parity, the sales tax ought to apply as neutrally as possible across all final personal consumption.Share