Tax Justice Digest stories about Mississippi

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 a long way to ensure that Mississippi's tax structure is fairer. For more on the EITC read here.

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.