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Mississippi riddle: why do tax collections belie drop in employment?

Change-in-tax-rev-state_rgbBy JACK WEATHERLY 

Mississippi is one of 28 states whose employment numbers in the 25-54 age group — the prime earning years — were lower in 2014 in terms of percentages, five years after the end of the national recession, according to a Pew Charitable Trusts report.

In 2007, 79.9 percent of those in the 25-to-54 group had a job, compared with 76.7 in 2014, the report states.

“The difference between the rates in 2007 and 2014—a decrease of 3.2 percentage points in the employment-to-population ratio for adults in their prime working years—shows that the U.S. labor market remains weak, Pew says.

That further suggests a fall in tax collections and other revenue, according to Pew.

In Mississippi, the employment rate in 2007 for the 25-54 group was 74.9 percent, according to Pew. In 2014 it was 69.8 percent, a decrease of 5.1 percentage points.

Miss-Employ-rate07-14_rgbIn fiscal 2007, $1.53 billion — the largest personal income tax amount ever in Mississippi — was put in the state’s General Fund. In the next three years, income-tax revenue dropped, reflecting the national recession, which officially lasted from December 2007 till June 2009.

But transfers of personal income tax to the general fund in 2012 and 2013 increased by 5.5 percent and 9.2 percent, respectively, as employment in the 25-54 category continued its downward trend.

What’s going on?

A definitive explanation for the seemingly contradictory employment and revenue trends has proven elusive for Mississippi’s University Research Center.

“There’s a disconnect there,” which is a topic of continuing discussions at the center, but so far the center has not been able to reconcile it, said Bob Neal, senior economist for the center.

“It’s been a complex and confusing issue for us,” Neal said. “Withholding taxes have been coming in strong for several years now and yet the underlying state of the economy doesn’t seem to correspond to that. Jobs growth in Mississippi has been poor and incomes are flat.”

“We may be missing those workers that are employed somewhere out of state but pay their taxes in Mississippi because they are residents of Mississippi.”

One thing that contributes to a better understanding of the seeming contradiction is the fact that the Department of Revenue is getting better at collecting taxes.

The Legislature in fiscal 2013 appropriated $3.5 million to enhance collections of taxes — mandating that the funding should lead to an increase of at least $10 million in collections.

The agency achieved that — more than eightfold — collecting $190 million in back taxes, or $80.9 million beyond fiscal 2012, according to Kathy Waterbury, communications director for the revenue agency.

Employment at the agency is now 775, still below the 800 in 2000, but more will be added, she said.

Another effect of the more-robust department is that with enhanced enforcement “voluntary compliance goes up,” Waterbury said.

About Jack Weatherly

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