How fair is Mississippi’s tax system compared to other states? A recent article in Governing magazine grading the states on taxation issues concludes that most state tax systems are unfair.
“They break the golden rule of tax equity: collect the lowest possible rates on the widest possible base of taxpayers,” Governing said.
Ed Buelow, chairman of the Mississippi State Tax Commission, said that most studies conclude Mississippi has one of the highest tax rates.
“Most of the studies I have seen say that our state is overtaxed in comparison to our income,” Buelow said. “I believe we are in the top 10 most-taxed states.”
Experts interviewed for this article all had their least favorite taxes. In Buelow’s case, he thinks the estate tax is one of the least equitable.
“It is unfair because you are taxing someone on something they have already paid taxes on,” he said.
Overall Buelow believes Mississippi has a relatively fair tax system across the board.
“I think there is some argument that the poor are overtaxed,” Buelow said. “They have to pay a disproportionate amount of their salary in sales tax. But they pay little or no income tax. I think the two wash out.”
People tend to complain a lot about the high cost of car tags in Mississippi. But Buelow points out few people seem to appreciate that taxes on owner-occupied homes and farms are low.
“Other taxes are relatively low compared to other states,” he said. “A lot of people say if you didn’t have a hefty car tag, people who rent wouldn’t be paying property tax at all if they didn’t have a car tag to pay for. I think the bottom line is no one wants to pay taxes.”
Lester Herrington, who works as a revenue specialist for the Mississippi Legislature, said that during his tenure as deputy commissioner of the Mississippi State Tax Commission he worked with three different study committees addressing the subject of tax fairness.
“The end result of all the studies is that no significant change has been made,” Herrington said. “I think you can study the system. But it is so hard, I think, to make any significant changes to what we have.”
Problems arise because when one tax that is considered unfair is eliminated, the money has to be made up somewhere else. It is a delicate balancing act pretty much guaranteed not to satisfy everyone.
An example could be sales tax exemptions. Many different types of tax exemptions have been granted, and Herrington says sometimes there has been little rhyme or reason to it. For example, some nonprofits have tax exemptions while other worthy nonprofits don’t.
To change that you would have to take away exemptions, or grant more exemptions to be fair that would result in giving up more revenues.
“All of those are very hard things for the Legislature to do,” Herrington said. “That is because all of the representatives have constituents in the categories where you are proposing to take exemptions away or put tax on. So when you talk about tax reform, it means that you are going to have to make significant changes and most of them are not going to be very popular.
“If you decreased tags, you would have to make it up somewhere else. When you start making a comparison of taxes I think you have to look at the whole package: what are sales tax, ad valorem tax, income tax, etc. You put all of it together and then determine how you compare as far as tax weight compared to other states. I think we are pretty favorable when those comparisons are made. But if you take one aspect like automobiles, it makes us look really bad.”
Dr. Darrin Webb, senior economist, University Research Center, agrees that when you start looking at the tax system, you can’t isolate one part of it and make conclusions.
“You have to look at the whole thing,” Webb said. “If you are going to examine the tax systems, you have to talk about everything, sales tax, corporate taxes, income taxes. Given that, are our taxes higher or lower than other states? The issue of the tax on the cars, I don’t like paying a high tag tax either. I would like all taxes to be low. But I recognize our income taxes are lower than some other states.”
Pete Walley, director of long-range planning for Mississippi, said recent studies indicate that state tax reform is an important issue. But he agrees it is very difficult to achieve meaningful tax reform.
“The point is that economic development, community development, tax reform and many other issues all are inter-connected,” Walley said. “We can’t just do one and expect all the others to take care of themselves.”
Walley believes that Mississippi should consider allowing an Earned Income Tax Credit on state tax returns. The federal Earned Income Tax Credit is a significant tax advantage for employed low-income parents. Many states also allow the Earned Income Tax Credit on state returns.
“Mississippi does not have an Earned Income Tax Credit,” says Walley.
“All my research says that it is a very good tool to move people out of poverty and into higher paying jobs. Mississippians tend not to take advantage of Federal Earned Income Tax Credit. We need to educate people on this issue.”
A tax that is criticized as being regressive — having more impact on those least able to afford it — is sales taxes on food.
There are sales taxes levied in 45 states and the District of Columbia. But most of those states have in some way eliminated, reduced or offset sales taxes for food that is consumed at home. Mississippi is one of only eight states that tax food purchased for home consumption without providing any relief for low- and moderate-income families.
No matter where taxes come from, problems surface if government spending continues to grow even during times of economic recession.
Buelow says that too much government spending — not falling revenues — is behind the budget problems currently being faced by Mississippi.
“What differs between Mississippi and other states is that we spent ourselves into this problem,” Buelow said. “This decline in revenue was predicted, but we didn’t predict it would fall as much as it did. But falling revenue isn’t the reason for the problem. The reason we are in this fix is we have a spending problem. We passed all the pay raises and other stuff and spent like crazy. That is the reason we are in trouble. If we hadn’t done all this spending, we wouldn’t be in the condition we are in now.”
Ron Aldridge, state director of National Federation of Independent Business (NFIB), agrees spending is the culprit.
“It is going to take quite an effort by the business community to come together to come up with some ideas on how government, at the state and local level, can begin to take charge of runaway spending that has been taking place. It has gotten out of balance.”
Tax fairness also needs to be addressed. Some of the business community complaints include deductions for health insurance. Health insurance premiums for businesses that have formed a corporation are 100% deductible. But Mississippi has 106,000 self-employed people who don’t get the same tax treatment.
“They are on a scale where deductions will steadily be increased to 100% for health insurance, but they aren’t there yet,” Aldridge said. “There is a discriminatory impact. There are more self-employed business owners than corporate owners in Mississippi, probably almost twice as many. We have to bring them up to at least the equivalent of tax equity so they at least get similar benefits.”
Another key tax that Aldridge says nearly every small business owner resents is the personal property tax on furniture and equipment.
7;t found any small business person who doesn’t think that is an unfair tax,” Aldridge said. “A good part of the country not longer has a personal property tax. That is an unfair tax that somehow needs to come off the books to put us in line w