As Mississippi Legislators work toward eliminating the personal income tax, they are looking for ways to recoup the resulting reduced revenue. One possible source is the elimination of various tax deductions, exemptions, and credits.
But a Bigger Pie Forum (BPF) analysis has found that the Department of Revenue’s official estimates of these deductions, exemptions, and credits are largely fabricated and should not be relied upon by the state Legislature.
Over the past 10 years, and perhaps longer, DOR has simply plugged in an arbitrary inflation adjustment, 2.5 percent in most cases, to arrive at its annual estimate of the cost to the state budget of most sales tax exemptions.
As a result, these amounts have no current basis in reality. It’s questionable whether they ever did.
Of the 46 sales tax exemptions for which DOR published an estimate this year, 37 of them, or 80 percent, were derived by applying the arbitrary inflation adjustment. Over the past 10 years, 74 percent of its estimates have been derived the same way, rather than making an attempt at determining an actual cost.
It appears that an occasional attempt is made at producing an accurate number. For example, the amount of sales tax that would have been collected on medicine if it were taxed was estimated to be around $30 million annually through fiscal year 2015. In 2016, the estimate was more than five times that amount at $162 million. In the years since, DOR has applied the arbitrary inflation adjustment – exactly 2.5 percent in some years and 2.0 percent in others.
These estimates are part of the annual “Tax Expenditures Report” produced by the State Economist’s Office, using data and estimates provided by DOR. “Tax expenditures” refer to the amount of revenue the state would receive if these and other tax exemptions, deductions, and credits did not exist. This is based on the theory, which is debatable, that not collecting a tax has the same effect as appropriating money from the state treasury.
The report does acknowledge that there are some estimates that should not be relied on, because “no established database exists for determining these values.” It is not clear why DOR offers baseless estimates for some exemptions but labels others as “Not Available” because of the lack of data.
Some estimates are identified as “Insignificant” (though one that had been marked as insignificant for years), suddenly had a $5 million price tag – which has since been set on the automatic 2.5 percent inflation track.
The estimates of income tax exemptions, deductions, and credits are perhaps more reliable than those for sales tax, though that is not certain. Those estimates are not arbitrarily adjusted the way sales tax estimates are. But there are wild swings of estimates from year to year that raise questions about their accuracy.
For instance, the estimated annual “cost” of the deduction for charitable contributions had been in the $70 million range until a five-fold spurt to $350 million in 2015, then settling back the next year to $83 million.
Considering the impact of tax deductions, exemptions, and credits is a legitimate function of the Legislature, and it is quite possible that some of these should be repealed in order to “pay” for a portion of the elimination of the state income tax.
But in order to do that responsibly, the Legislature must have reasonably accurate information. The Tax Expenditure Report is not a reliable source, and the Department of Revenue should not present it as such.
Bigger Pie Forum authored and sponsored this post.
24 comments:
Ummmmmm, so in simple terms for this guy (me) ......the state has more money than it's letting on and that extra money is being pocketed by those who can do the hard math ?
That the champions of removing the income tax are led by Douglas Carswell, a leader of the disastrous Brexit movement tells me all I need to know. Carswell heads up the Mississippi Center for Public Policy. They don't do the numbers, but sure know the ideology.
Bottom line:
CUT MY TAXES, BUT DO NOT RAISE SALES TAX TO DO IT!
Aren't these the numbers Gerard Gibbert has used in his endless speeches and radio pontifications for two years? He knew they were outrageous guestimates. But, then again, the man is a millionaire who has a personal stake in income tax elimination, nothing more. And he's trotted the traveling circuit to any group of three or more who would eat chicken and green beans and listen to him.
It takes money to run government and provide services. So unless they take the amount of money that is generated by personal income taxes and deduct that amount from the services the state government provides, then the money has to come from somewhere. Higher sales taxes, user fees, etc.
Florida and Tennessee have no state income tax but have high property taxes, gasoline tax, sales tax,etc. Those states also have a robust tourist industry that generates tax money from out of staters.
Again, the money has to come from somewhere.
Carswell, you say! Fee Fie Fo Fum, I smell the blood of an English-munn. Do we really need a failed Brit guiding Mississippi tax law?
Well, that ain't no worse than a Mississippi legislator in an orange tie deciding our medical marijuana laws while ordering cinder blocks and concrete.
I like decent roads, bridges, airports, etc. I don’t have a problem being taxed for these things. And neither should corporations that enjoy the benefits of these things.
You can bet on 10% to 12% sales tax statewide. The poor and working class will be paying nearly the entire tax burden soon.
How much did the state get from Amazon and the other big retailers. Why not take baby steps; lower max state income to 3%; check balance; go from there?
It takes xxx dollars to fund the state government, regardless of where it comes from. This is all a shell game with fuzzy-math, Mississippi version.
I think the underlying message here is that we do not need to pay these public school teachers another additional dime in additional money for the unsatisfactory products they are putting ou!,
It appears that some of our legislators want to remove one tax only to substitute another one for it. A simple case of “ Rob Peter to pay Paul”!
When that happens Peter is going to get sore and you can’t do business with a sore Peter!
4:59 We lived in rual TN from 1996 to 2016 then retired to Rankin Co. for family. Sales tax was the only thing higher 7% state plus 2.5% County. Insurance was 25% lower and property taxes also lower. Car tag flat rate $45. Annual termite treatment $75. Overall TN cost of living with no state income tax was considerably lower.
4:59 We lived in rual TN from 1996 to 2016 then retired to Rankin Co. for family. Sales tax was the only thing higher 7% state plus 2.5% County. Insurance was 25% lower and property taxes also lower. Car tag flat rate $45. Annual termite treatment $75. Overall TN cost of living with no state income tax was considerably lower.
Mississippi is dead last in education obtainment, they can sell this Hokus pokus math all day.
Abolishing the income tax and raising the sales tax will disproportionately impact the poorest Mississippians. Our Republican political leaders could care less. Typical, but sad.
"you can’t do business with a sore Peter! "
The inner 6-year-old in me got a good laugh out of that line ;-)
7:54 : Hinds county is ripe with un vetted teachers from west of the Mississippi who aren't ummmmmmm very savory. So just throwing money at these folks is a bit pre mature. Maybe different over there in Madison.
Hello there MADISON COUNTY @ 7:54 - Unless you live in the Canton Separate District, you know your statement is bullshit. But, if you DON'T know it's bullshit, you should bone up.
If more new businesses and investor wealth are attracted to MS because of "no income tax", the total revenue coming from more sales tax accounts may increase, along with more jobs and prosperity.
But in TX, property tax increased dramatically and is enforced per actual market value as a basis.
Forming revenue policy around an uneducated, impoverished criminal class is a dead end as Little Unclothed Emperor locally demonstrates.
@9:00am
JFP is that you coddling the uneducated, no Daddy delinquents again to enable your wet dream of a commie state here? Maybe just do Fondren as a demonstrator.
@9:00 AM - impact the poorest? You are guessing and using confirmation bias. The poorest likely do not pay much sales tax, as there is no tax on food stamps, subsidies, other free stuff, food banks, free lunches, etc.
Let's not forget the State's past and current commitment to the "underfunded" police, fire, teachers, mdot and the other dedicated state workers thru the "underfunded" PERS pension fund.
The powerbrokers in this State have long known that the MS legislature is math challenged and easy to dupe.
We those we elect don't even understand how an average is computed( as in they never even averaged their grades in junior or senior high), it's time to laugh or cry.
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