Tax Justice Digest stories about Mississippi
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
The three states with the most intense cigarette tax debates at the moment are
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
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.
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.
