Recently in Mississippi Category

Last week brought with it a flurry of news stories discussing the issue of how to pay for transportation infrastructure. This topic is never too far from the agenda in statehouses across the country, in large part because most states fund their infrastructures primarily with a fixed-rate gasoline tax (levied as a specific number of cents per gallon) which inevitably becomes inadequate over time as inflation erodes the value of that tax rate. What's more, with fuel efficiency becoming an increasingly important criterion in Americans' car-buying decisions, drivers are able to travel the same distance while purchasing less gasoline, and paying less in gasoline taxes.

With all this in mind, Mississippi's top transportation official last week publicly stated that the state's lawmakers need to increase their flat 18.5 cent per gallon gas tax rate. As evidence of this need, the official also noted that 25% of the state's bridges are deficient.

In a similar vein, one recent op-ed in Michigan called for increasing the state's gas tax and restructuring it to prevent it from continually losing its value due to inflation. Another op-ed ran in the same paper that day, this one written by the President of the Michigan Petroleum Association, insisting that the state eliminate the gas tax altogether and pay for the lost revenue with increased sales taxes. The most obvious flaw with this plan is that it would shift the responsibility for paying taxes away from long-distance commuters and those owners of heavier (and generally less fuel-efficient) vehicles -- despite the fact that these are precisely the people who benefit most from the government's provision of roads.

More news coverage of the transportation issue came out of South Dakota last week, where a committee of legislators is currently in search of additional revenue to plug the hole created by predictably sluggish gas tax revenues. While some have expressed an interest in raising the gas tax, others have suggested replacing it entirely with hugely increased licensing fees. But licensing fees are not as capable as the gas tax in charging frequent and long-distance drivers for the roads they use.

The best way to ensure that those drivers pay for the roads they use, however, is to simply levy a tax on each mile they drive (known as a "vehicle miles traveled" tax, or VMT). While the idea has yet to be implemented in practice in the U.S., recent coverage of a pilot project involving 1,500 drivers in New Mexico shows that such a tax is a very real possibility in the future. Basically, a small computer is installed in each car which keeps track of the number of miles driven. That information is then reported to the tax collection agency, and the driver is sent a bill.

This method avoids the scenario in which drivers of vehicles of similar weights (which produce similar wear-and-tear on any given road) can end up with vastly different gas tax bills due differences in fuel efficiency. Interestingly, this new study is examining a system that would allow the computer to know which state somebody is driving in, so that the correct amount of tax can be paid to the correct state. Unsurprisingly, despite the public finance appeal of this method, privacy concerns remain a major obstacle to implementation.

For over two decades, Mississippi and Florida have bucked the national trend of increasing cigarette taxes. But now, staring down massive budget deficits, Mississippi Governor Haley Barbour recently signed a 50 cent-per-pack cigarette tax increase, and Florida Governor Charlie Crist appears ready to do the same with a $1 per pack hike. Given that each is a conservative governor with at least some national aspirations, the result is a bit surprising to say the least.

In the case of Governor Barbour, his approval was especially unexpected in light of his status as a former tobacco industry lobbyist. Governor Crist's support was likewise unanticipated, largely because he has signed pledges to oppose tax increases as both a Governor and as a candidate for federal office. Crist was careful to frame his support as entirely focused on the public health aspects of cigarette tax increases, though it's hard to believe that his desire to avoid forcing a special session to balance the budget had nothing to do with his decision. Thus is the responsibility of governing. Sometimes tax increases cannot be kept off the table.

While reports such as those out of Iowa and Virginia (see "Budget Fixes Worth Embracing", in this week's Digest) highlight some of the best ways for states to dig themselves out of their current budgetary nightmares, in many cases it appears that the cigarette tax is continuing to hold on to its title as the single most popular tax to increase among the states. Policy advocates and even many legislators are often careful to frame their support of cigarette tax hikes in terms of fighting smoking or reducing health care costs, but in times as desperate as these, it's hard not to suspect that revenue needs may be the driving force. The fact is that revenue from the cigarette tax is almost never sustainable over time because the U.S. smoking population is constantly on the decline. It's therefore difficult to get excited about the cigarette tax as a budget-fix for any period of time beyond the very short-term -- and even then, states should never be excited about raising revenue through such a regressive tax. But in states that have held their cigarette taxes constant at low levels for a number of years, it's also hard to get too upset over such proposals. Five states in particular made news this week in their debates over the cigarette tax: Florida, Mississippi, Oregon, South Carolina, and Utah.

The three states with the most intense cigarette tax debates at the moment are Florida, Mississippi, and Oregon. Florida and Mississippi haven't increased their cigarette tax rates in 18 and 23 years, respectively, and therefore have some of the lowest cigarette tax rates in the nation. Hikes in the range of 50 cents to $1 per pack are being proposed in Florida, while Mississippi's debate appears to be over a range of 24 cents to $1 per pack. In Oregon, the governor recently proposed a 60 cent hike as part of his budget. The intent of that hike is use the new revenue as part of a package to expand health care in the state -- such an arrangement is likely to result in tensions down the road as cigarette revenues fall and health costs continue to rise.

South Carolina provides another example of a state with a cigarette tax debate worth following. In this past year's session, the legislature approved a cigarette tax hike, only to eventually be vetoed by the governor, ostensibly out of concern over linking such an unsustainable revenue source to a permanent expansion of Medicaid. As the appearance of a recent op-ed praising the benefits of hiking SC's lowest-in-the-nation rate suggests, this debate is not yet over.

Utah provides another example of a potential budding cigarette tax debate. With the American Cancer society enthusiastically seeking to capitalize on what appears to be a favorable climate for a cigarette tax hike, one has to expect the idea to pick up steam during discussions over how to close the state's looming budget gap.

The Mississippi Tax Commission, appointed by Governor Haley Barbour, recently produced a promising draft report of recommendations for Mississippi's tax code. Even more importantly, all indications are that the final version will be even better.

Among the major recommendations: Increase the standard deduction, as well as the personal and dependent exemptions. Eliminate numerous sales tax exemptions, and expand the tax to include more services. Hike the state's third-lowest in the nation cigarette tax rate, but don't dedicate those likely unsustainable revenues to any specific program. Participate in the Streamlined Sales Tax Agreement. Consider combined reporting. And finally, undertake steps to make the state's gas tax a more sustainable source of transportation revenues.

The Mississippi Economic Policy Center (MEPC) worked closely with the Commission throughout the process of drafting its recommendations, and has offered some additional recommendations (both in this formal statement, and in this policy brief) to which the Commission has been receptive. Among the ideas floated by MEPC and not already included in the draft report: Implement a state EITC. Cut the state's grocery tax rate (Mississippi is one of only two states that provides no relief from the sales tax on groceries). Index the standard exemptions and deductions to inflation. Broaden the state's low and narrow income tax brackets. Develop a capacity for tax incidence analysis. And improve data collection on the effectiveness of state tax credits.

It will certainly be exciting to see the final version of this report, and how it influences state tax policy in Mississippi.

As we mentioned last week, this is the season for fiscally irresponsible sales tax holidays to purportedly give relief to working people on their back-to-school shopping. Sales tax holidays are a bad idea for the states' budgets and tax-payers alike. Low-income families probably cannot time their purchases to take advantage of a sales tax holiday, and it can be an administrative headache for retailers and government. Sales tax holidays are also poorly targeted to low-income individuals compared to other policy solutions such as low-income tax credits.

Now another group of states is ready to forgo needed tax revenue in exchange for a few dollars off the purchase price of various goods. These states include Alabama, Iowa, Missouri, North Carolina, Tennessee, and Virginia among others with holidays scheduled Friday through Sunday.

Meanwhile, a Birmingham News editorial points out that the sales tax holiday is a "gimmick" that has allowed state lawmakers to divert attention from their outrageously regressive tax code. Alabama is one of only two states that doesn't exempt or provide a low-income credit for its sales tax on groceries. If that were done, Alabama consumers would save far more money than they do on a three-day sales tax holiday (an average family of four would save about seven times as much). But instead of exempting groceries from sales taxes or raising the state's second-lowest in the nation income tax threshold, lawmakers pretend to help low-income Alabamians with a few tax-free shopping days a year.

Georgia's sales tax holiday began on Thursday and exempts articles of clothing costing less than $100, personal computers cheaper than $1500, and school supplies under $20. This week, the Atlanta Journal-Constitution mentioned some of the more amusing exemptions covered by that state's sales tax holiday. These exemptions include corsets, bow ties and bowling shoes. As the author noted, guys headed to their first day back in school "might combine the bow ties and bowling shoes, then just head straight for the restroom to collect their free swirlie." The article also mentions ski suits, highly unlikely to be big sellers in Georgia, and adult diapers, seemingly unrelated to the average family's back-to-school needs. Georgia lawmakers may want to revise their list of exemptions to concentrate on discounting necessities, or better yet, end this farce once and for all.

As we reported in a recent digest Mississippi Governor Haley Barbour has appointed members to a commission to consider tax reform. The Mississippi Economic Policy Center (MEPC) this week published an op-ed that hopefully legislators and members of the Commission will take very seriously. Ed Sivak, Director of MEPC, says the Magnolia State has "been given the opportunity to strengthen the tax code by making it less regressive." The state has a tax structure that ensures that low and middle income families pay a far higher share of their income in state and local taxes than do the wealthiest Mississippi families.

Policymakers would do well to follow Sivak's advice and follow in the footsteps of 22 other states (plus DC) by enacting an Earned Income Tax Credit (EITC). The EITC helps lift working families out of poverty and would go long way to ensure that Mississippi's tax structure is fairer. For more on the EITC read here.

This week Mississippi Governor Haley Barbour named 37 members of the state's newly formed Tax Study Commission. The business community is heavily represented on the Commission, which is hardly surprising given the Governor's experience as a K Street lobbyist in Washington. Barbour tries to be reassuring by pointing out that the members of the new group "share a common bond in that they are all Mississippi taxpayers." The group's recommendations are due August 31. This comes shortly after Barbour announced in his State of the State address that he would like to complete an overhaul of the state's tax system by the end of his term in office. Let's hope this close look into Mississippi's tax structure takes into account the state's outdated income tax and overall regressive tax structure.

A new report from the Mississippi Economic Policy Center provides a great primer on that state's budget process, with a concise summary of how the state raises and spends revenue. "Putting the Pieces Together: A Taxpayer's Guide to the Mississippi Budget" highlights the chronic unfairness of the current Mississippi tax system, and discusses the shortcomings of the state's revenue structure in a highly readable way. Governor Haley Barbour says that Mississippi needs a tax structure in which "everybody pays a fair share." Let's hope that Governor Barbour reads this report and gains a better understanding of who really pays taxes in Mississippi.

Wednesday, Iowa Governor Chet Culver signed into law a bill that raises cigarette taxes by $1 a pack and also increases taxes on various other tobacco products. The Governor predicts that the new $1.36 tax will cause 20,000 Iowans to quit smoking and prevent twice as many from ever picking up the habit. The tax increase goes into effect immediately and revenues generated are expected to be used for healthcare. Unfortunately, evidence from other states shows that revenues generated from this regressive tax will decline over time.

In Mississippi, a proposal to swap a cigarette tax hike for a sales tax cut appears to be dead for the second time. While promising to propose a "serious tax cut" in the future, Governor Haley Barbour refused to support a bill that would increase the state's cigarette tax from 18 cents to $1 and cut the tax on groceries by half. The problems with Mississippi's tax code go beyond sales and excise taxes, so perhaps now is the time for discussing a complete overhaul of Mississippi's tax structure.

Four states - Mississipi, Tennessee, Arkansas, and Idaho - are currently debating ways to reduce the sales taxes paid on food. But how (or whether) to pay for the cuts and who should benefit remain key sticking points.

On Thursday, the Mississippi House of Representatives passed (91-27) a "tax swap" bill that would cut the state's sales tax on groceries in half and raise the tax on cigarettes to $1 per pack. The bill still faces significant challenges before becoming law, however, since key members of the Senate oppose it and Governor Haley Barbour vetoed a similar bill last year. Although the plan's reliance on revenue from cigarette taxes is not a long-term solution, it does offer a temporary mechanism to make up the revenue that would be lost from a cut on the sales tax on food.

In Tennessee, a similar "tax swap" is under consideration. However Gov. Phil Bresden has expressed reluctance to link a cigarrette tax increase with a grocery tax reduction, and has instead proposed using revenue from a cigarette tax increase for education funding.

Arkansas Gov. Mike Beebe signed a grocery tax reduction into law on Thursday that will reduce the state's sales tax on groceries from 6% to 3% effective July 1st. However, no funding mechanism was enacted to make up for the decreased revenue, as lawmakers instead decided to rely on a projected surplus to pay for the proposal.

In Idaho, Gov. Butch Otter continues to struggle with the state legislature over how best to enact a grocery tax credit. Otter's proposal would target low-income Idahoans with a credit of up to $90, while the House's newly passed version would give a smaller grocery tax credit (up to $50) to a broader range of residents.

A New York Times article reports that for many homeowners, property taxes are growing much faster than income. New Jersey Governor Jon Corzine blames this trend on the property tax being "imposed without any regard to income or ability to pay." This isn't quite true, of course: a well-administered property tax will be based on a homeowner's actual home value, which is a decent, if imperfect, measure of ability to pay for most people. And for lower-income families, an income-sensitive circuit-breaker credit can make the property tax even more responsive to ability to pay considerations. Unfortunately, state lawmakers typically respond to rising property values by freezing or capping assessed values, which further warps the relationship between property taxes and ability to pay. A gubernatorial candidate in Alabama wants to put an end to a recently adopted reform requiring annual reassessment of properties, and at least one county in South Carolina has taken the step of throwing out the results of its most recent reassessment. The likely outcome of this misguided tax deform is a tax shift away from homes that are appreciating rapidly and toward homes whose values are stagnant or declining. Facing a localized home-value boom of its own, Mississippi policymakers are discussing imposing another, equally misguided approach: capping the allowable annual growth in homeowner property taxes. Find out more about why tax caps are counterproductive here.