A report looking at the potential impact of eliminating Illinois’ grocery tax suggests most families would see only modest relief, while municipalities would face a “consequential” revenue shortfall.
However, the Pritzker administration remains committed to the cut, saying it disproportionately impacts low-income households.
Gov. JB Pritzker called for the permanent elimination of the 1% grocery tax during his State of the State speech in February while announcing a $52.7 billion budget plan.
In an interview with WCBU, Deputy Gov. Andy Manar said the grocery tax is “clearly a regressive tax,” and noted that Illinois is one of only 13 states that tax groceries on the state level. Manar said Pritzker wants to open a “public discussion with the General Assembly” regarding government funding approaches.
“The governor has said the state should not be in the business of taxing groceries, especially when the state doesn't spend the money that is generated from the tax,” said Manar. “So if it's a local decision to spend the money and [decide] how it's spent, then it should be a local decision as to whether or not it should be taxed.”
A recent policy spotlight published by the University of Illinois System’s Institute of Government and Public Affairs [IGPA] finds that while municipalities are projected to see significant lost revenue, individual households would only see modest savings.
IGPA interim associate director Elizabeth Powers, the author of the report, said the regressiveness of the grocery tax is a complex subject.
“It's true that grocery expenditures are a higher share of income for lower income people. In fact, they're quite high at the bottom — for the bottom 20% of incomes, they're 22% of pre-tax income,” said Powers. “So that's a lot of money for those households. The thing about the lowest income households, though, is that they receive most of food stamps — what used to be called food stamps, now called SNAP. And when you pay for groceries with SNAP, none of that is subject to tax at any level.
“So what you see is that the grocery tax burden on the lowest-income households, on average, is quite small because most of the food purchases at the grocery store are exempt from the tax. Now, as you move up the income distribution and fewer households get SNAP, then, of course, they are subject to the grocery tax and you do see some regressivity of lower-middle and middle-income households relative to those higher-income households.”
The report says a family would need to spend at least $30,000 a year on groceries to see a “few hundred bucks” in savings.
Local governments receive all of the revenue collected by the state through the grocery tax. When Pritzker suspended the grocery tax for one year and 2022, the state reimbursed municipalities for the lost revenue, but that wouldn't be the case under his new proposal.
“I think why they’ve been taken maybe by surprise — although I can't speak for the leaders of municipalities — but maybe they were a little disappointed because this announcement said, ‘We're going to remove the grocery tax forever, and we don't have an explicit plan to make that up,’” said Powers.
The Illinois Municipal League strongly opposes cutting the state grocery tax, estimating Pritzker’s proposal would cost municipalities a total of $325 million annually. Across the Tri County area, Peoria could lose around $4 million a year, Pekin anticipates a shortfall of $1.5 million, and Washington projects a loss of $500,000.
Manar posted a lengthy criticism of the IGPA study in a thread on social media, disputing the suggestion the benefit for households would be minimal.
“No report from the university or any other group is going to convince me — or the governor, or most people, frankly — that taxing bread and eggs and milk isn't regressive. That's the bottom line,” said Manar.
“There are families that struggle every day to buy groceries that do not receive assistance in SNAP benefits or other forms of assistance from the state to purchase groceries. That's a fact that was overlooked in the report, by the way. And frankly, I think it was tone deaf when it comes to the struggles that people are feeling when it comes to dealing with inflation and what buying groceries for your family costs today versus a handful of months or a couple of years ago.”
Manar pointed out that disbursements to cities and towns through the state’s Local Government Distributive Fund climbed from $985 million in 2010 to almost $2 billion in 2023 — an increase of 102%.
“Meanwhile, we have local leaders, of course, telling their constituents the state government is cutting their funding, which is just simply false. It just is not true,” said Manar. “The data doesn't show it, and that's why the governor again thinks this is a good time to have the conversation about taxing groceries.”
Peoria Mayor Rita Ali said city leaders were blindsided by the grocery tax elimination proposal plan, and the city will need to consider implementing a local grocery tax to recoup the lost revenue.
“If we don't, we're going to lose very important services,” said Ali. “I mean, $4 million is about 12% of our community development budget. We could lose protective services; we would definitely have to cut staff in important areas. And we're making such great progress in terms of neighborhood development, police and fire protection services, that I do not want to cut these important services.”
The political action committee BizPAC of Central Illinois has called on the Peoria City Council to support the governor's proposal, and refrain from imposing new taxes. BizPAC recommends the city “identify and trim $4 million in unnecessary expenses” from the annual budget.
“I mean, that was an insult that we have $4 million in unnecessary expenses, because we don't,” said Ali. “The expenses that we have are those that are vital services to our community.”
Since Pritzker announced the plan as part of his budget proposal, many expected it would go into effect on July 1.
“That would have been a problem for municipalities because the deadlines for them to substitute their own grocery tax have passed. So if it were to be implemented July 1, they would at least have missed out on a part-year of the tax collections,” said Powers.
However, Manar said no firm date for eliminating the grocery tax has been determined, and the July 1 date cited in the IGPA report is an assumption.
“No one from the administration has ever said that. It has never been published. The governor, to my knowledge, has never said that. I certainly have not said that,” said Manar, adding Pritzker discussed flexibility regarding the start date in conversations with the IML on “lobby day” earlier this month in Springfield.
“He said he was open, and has consistently said he is open, to an implementation timeline that makes sense. There's all kinds of things that have to be taken into consideration, and the administration recognizes that. For example, when tax rates change, you just don't flip a switch and those rates then change at the register — in this case, they would go down. There's back end work; there's behind the scenes work at the Department of Revenue, and communicating that to retailers. That all takes time.”
Powers said municipalities could consider alternatives to implementing their own grocery tax to make up the lost revenue.
“A good option is revenue from the state income tax, which is being done over time; my conclusion was that was probably the best option,” said Powers. The worst option would be, I think, if municipalities raised other retail taxes because those purchases are not exempt from tax for low-income families, unlike the grocery purchases — and there's much more spending on non-grocery items than grocery items.
“So, for instance, if you replace the grocery tax, and you said, ‘We're just going to tax other things to make up for the grocery tax,’ you would actually be harming lower income families a lot more and making a regressive tax even more regressive.”
