Despite better ideas on how to truly help low-income parents of infants, California lawmakers took a route this July that spends a lot of money but doesn’t sufficiently help the group in need of assistance. Why does this happen? There is plenty of data and a 2019 report from the Legislative Analysts Office pointing out that their law change won’t provide as much help as it could have if better designed.
I’m talking about what started out in 2019 (SB 92, Chapter 34 (6/27/19)) as a two-year exemption (2020 and 2021) from sales tax for infant diapers and menstrual products. The state was required to transfer the lost revenue to local governments. SB 92 also required application of the accountability provision at Revenue & Taxation Code section 41 for the LAO to measure the effectiveness of the exemption in meeting the stated goal of promoting public health by increasing the affordability of and expanding access to diapers.
Prior to its expiration and before the LAO could complete its analysis, lawmakers extended the exemptions until July 1, 2023 and extended the due date for the LAO report to 7/1/22. (AB 85 (Chapter 8, 6/29/20)). Now, with AB 150 (Chapter 82 (7/16/21)), lawmakers have made the diaper and menstrual product exemptions permanent and cancelled the LAO report on the effectiveness of these exemptions.
I wrote about the weaknesses of the infant diaper sales tax exemption in 2019 (8/3/19 post), but repeat the highlights due to this recent example of missed opportunity to really help individuals in need which would end up benefitting us all via healthier babies, greater funds for low-income individuals, and less missed work.
While it may sound good to say you are helping public health and helping to make infant diapers more affordable, we need to ask more questions and apply critical thinking. In my earlier post, I noted that diapers cost between 11 cents per diaper up to 49 cents per diaper. Likely, the more expensive diapers are purchased by parents with more funds who don’t need the sales tax savings (roughly 9 – 10% of the purchase price) and likely don’t even notice the savings.*
How much does this cost the state in lost revenue? Per the 2021-2021 tax expenditure report of the California Dept. of Finance, $76 million per year!
Prior to original enactment of the diaper exemption, the LAO told lawmakers that if they really wanted to help low-income families, providing greater subsidies to child care would be better. Per this 2019 report:
“the state can expand a program that addresses one of the biggest expenses parents face: child care. The state funds various types of subsidized child care for low-income families, but the number of eligible children typically exceeds the number of “slots” funded by the state. Due to this shortfall, the state fails to assist part of the targeted population and creates an inequity between those who receive slots and those who do not.”
So, why isn’t the $72 million per year used to really help low-income parents of infants?
I think it is because we aren’t asking enough questions such as:
Which income group of parents gets the biggest savings from this tax break? It is the higher income taxpayers who spend more money on diapers and don’t need the assistance (wasted spending).* Why are we subsidizing folks who don’t need a subsidy?
Will reducing the cost of diapers by the 9 to 10.5 cents of sales tax per dollar help low-income individuals? Of course it offers some assistance, but we still have diaper banks in California and many struggle to pay the sticker price, not just the sales tax.
What would provide better, more targeted help? Use the $72 million to help those who need it rather than those who do not. Provide diapers to child care centers who serve low-income workers. I read a report last year on diaper banks for a Tax Notes State article on the need to fix the sales tax base. I learned that some parents get turned away from the child care center if they did not bring diapers for their child so then have to miss work to stay home with the child. Why not use $72 million to prevent this?
Why make the exemption permanent before its expiration date and before getting the analysis from the LAO on the effectiveness of the exemption? Again, we all need to demand greater accountability from lawmakers regarding spending.
*I recently learned from reading an excellent book that I highly recommend reading (and hope all lawmakers read it) – Broke in America: Seeing, Understanding, and Ending US Poverty (2021), that some low-income individuals do end up spending more on diapers than would be charged if buying them in bulk from a big box retailer because they might not live near such a retailer and/or they don’t have a lot of funds at once so buy the smaller package where the cost per diaper is higher. Again, this calls out for doing better with taxpayer dollars than occurs with the now permanent California sales tax exemption on infant diapers.
What do you think?