August 19, 2008

Tax Study Commission Can Improve Business Cimate

This letter was published in the Jackson Clarion-Ledger on August 19, 2008.

The Mississippi Tax Study Commission has issued a draft of its recommendations for improving the state’s tax system. The best tax system is one with low rates on a broad base, treating all taxpayers equally while minimizing economic distortions. When I testified before the commission, I expressed the hope that it will work toward such a tax system, which would make Mississippi a more powerful economic performer.

Repealing corporate franchise and inventory taxes would attract more investment, while reducing a hefty cost borne by even unprofitable businesses. Businesses could then make decisions on economic factors, not tax liability concerns. Repeal would eliminate these distortions without the complexity of more tax credits.

Eliminating Mississippi’s sales taxes on machinery would improve the state’s business tax climate. Only 14 other states have this tax, and businesses are known to avoid states with it. Such taxes on business inputs are hidden taxes, since they are passed on to consumers in the price of goods.

The commission should also be careful about urging increased cigarette taxes. The poor bear a disproportionate share of such “sin” taxes, and they inequitably shift the burden of paying for government to a small group of people. Hefty taxes designed to reduce an activity should also not be relied on for revenue.

I commend Gov. Haley Barbour and the commission for taking a comprehensive look at Mississippi’s tax system. I hope that the commission considers proposals that can provide Magnolia State residents with a simple, neutral, transparent and stable tax system.

Joe Henchman

Tax Counsel

The Tax Foundation

Washington, D.C.