Joe Henchman and I attended the first hearing of the MS TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Study Commission, in Jackson, MS on Monday March 24. The Commission has been appointed by Governor Haley Barbour and will take an all encompassing look at reforming the tax system in the state. They will submit a report by August 31, 2008 with recommendations for improving the state’s tax code. The agenda for Monday’s hearing included an opening from Governor Haley Barbour, an overview of the state’s tax system by Joe Blunt, Commissioner of Revenue, and then testimony from Joe Henchman (Tax Foundation Tax Counsel) and Richard Greene (with the Pew Center on the States and a writer for Governing magazine).
Commissioner Joe Blunt showed the group a slide with the Institute of Certified Public Accountants accepted principles for a sound tax system. The main tenets listed were a broad base, transparency, fairness, neutrality, and a convenient payment method, very similar to the Tax Foundation’s Ten Principles for Sound Taxation. Commissioner Blunt also used the Tax Foundation’s Facts & Figures booklet to answer a question from one of the Commission members about gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. rates.
Meg Bartlett, of the State Tax Commission, gave an overview of the state’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. system and its history. Groceries are 17% of total sales tax collections. MS is one of just seven states to tax groceries at the full rate. But, without the sales tax on groceries, the overall sales tax rate would have to be nearly 8.5 %. We’ve written before that groceries should not be exempted from sales tax, as it narrows the base and raises the overall rate. MS is a good example of a state that has not fallen into this trap and Gov. Barbour has vetoed a bill that would exempt groceries from the sales tax.
Joe Henchman outlined several recommendations to make Mississippi’s tax system more competitive, encapsulated in Tax Foundation Special Report #161. Highlights include:
(1) Repeal at least one of three business taxes: the corporate franchise tax, the inventory tax, or the intangibles tax. This would reduce compliance and tax burdens while giving the state a comparative advantage over its neighbors;
(2) Resist calls to raise corporate tax rates or add new brackets, which would be at odds with the global trend of attracting business by lowering corporate tax rates, and flatten brackets because multiple rates on corporate income achieve no logical or progressive goal;
(3) Adjust brackets annually for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and conform to the federal tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , to reduce compliance costs;
(4) Broaden the sales tax base and lower its rate, covering all final retail transactions while exempting business-to-business inputs to avoid taxes being levied on top of taxes;
(5) Eliminate or reduce special incentives (Mississippi offers at least 16 corporate tax incentive credits, and an explanation of them runs 98 pages long).
Richard Greene’s recommendations were amazingly similar to those of the Tax Foundation. He agreed with us that taxing both inventory and intangible property is harmful. He also noted that these taxes send a message to businesses that your state doesn’t care as much as other states in attracting businesses, validating that taxes do in fact matter. He also noted that when you tax corporations, you are just passing a tax through to people.
Greene added a few additional thoughts that we may not agree with: he supports required combined reporting and streamlining sales taxation, as well as a sales tax on internet transactions. But he noted that telecommunications companies should not be overtaxed and that we are competing in a global economy. Keeping volatility in a state’s tax system to a minimum will attract business, and he stressed the need for good data before the Commission decides to act. Greene closed with his “golden rule of taxation”, that states should strive to have the broadest possible base and the lowest rates. Everything else they do, Greene said, is just commentary.
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