By BOBBY HARRISON
The study committee formed in the summer by House Speaker Philip Gunn and Lt. Gov. Tate Reeves to make recommendations to the full Legislature on possible changes to the state tax structure apparently will depend on the Washington D.C.-based Tax Foundation for most of its information.
The specially appointed committee, consisting of legislators and a representative of Gov. Phil Bryant’s office, concluded its public meeting earlier this week by receiving recommendations from Nicole Kaeding, an economist with the Tax Foundation, on possible ways to change the state’s tax structure.
The panel also heard from state Department of Revenue Commissioner Herb Frierson. But by far, the bulk of the three public meetings the panel conducted was spent listening to Kaeding.
According to the Tax Foundation’s website, the group’s mission is “to lead the tax reform debate toward smarter, simpler policy” that also includes the elements of “neutrality, transparency and stability.”
To achieve those goals, Kaeding reiterated, as she has in past hearings, the state should strive to taxing consumption, such as through a sales tax or use tax on retail items, instead of taxing income.
Mississippi already relies heavily on the sales tax. The 7 percent tax on most retail items is the state’s single largest source of revenue – generating more than $2.1 billion annually or nearly 38 percent of the total general fund. The income tax generates about $1.8 billion or a little less than 34 percent of the total general fund.
Kaeding singled out eliminating the sales tax exemptions on various services, such as on barbers, gym memberships and veterinary services for pets, but not for commercially raised animals.
Kaeding advocated as few taxes as possible on businesses, saying such taxes simply increase the cost of products for consumers.
Along those lines, she encouraged legislators to speed up the phase out of the franchise tax, a levy businesses pay on their capital. The tax cut, passed during the 2016 session, is set to be fully enacted by 2024.
Kaeding’s overall plan received some push back, especially from Democrats on the panel. She was asked about reducing the 7 percent tax on grocery purchases. Many have long argued that it is unfair to have the highest state-imposed grocery tax in the nation in a state with the highest percentage of poor people, forcing people least able to pay to spend a disproportionate share of their income on food.
Kaeding acknowledged that only “six or seven” states actually tax grocery purchases.
“In an economic sense, there should be a tax on groceries,” Kaeding said. “There is nothing unique about it.”
According to information compiled by the non-profit Hope Policy Institute, Mississippi households “in the lowest, second and middle groups for earnings all pay more than 10 percent of their income in state and local taxes (including sales tax, income tax and property taxes) while the top 5 percent of households by income pay less than 7 percent of their household earnings in such taxes.”
The Hope Policy Institute did not appear before the study committee.
The coming months will determine how closely legislators follow the recommendations of Kaeding and the Tax Foundation.
But it is clear the leadership is listening.
Reeves stated as one of his goals moving up the list of the Tax Foundation’s rankings of the states with the most friendly business tax climate.
“I would like to see us move into the top 15 of that report, if not higher,” Reeves said.
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