April 3, 2008
New Study of Mississippi Tax Policy Urges Simplification
Mississippi's tax system is competitive, and the state's economy is prospering, but several reforms would make it even more conducive to economic growth, according to a new Tax Foundation Special Report, No. 161, "An Opportunity to Improve Mississippi's Tax Climate," by tax counsel Joseph Henchman and state relations manager Tonya Barr.
The study is based on testimony Henchman gave March 24 before the Mississippi Tax Study Commission, which was established by Governor Haley Barbour to prepare a comprehensive study of the state's tax system and recommend improvements by this coming summer.
"This fresh and all-inclusive look at Mississippi's tax system by an independent panel represents a great opportunity for the Magnolia State to reform its tax system in accordance with the principles of sound tax policy," Henchman testified. "By applying these principles, and reviewing the state's current performance as described by the Tax Foundation's State Business Tax Climate Index, we can identify several areas ripe for improvement."
In his testimony, Henchman highlighted these recommendations:
(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 inflation and conform to the federal tax base, 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).
Testifying with Henchman were State Revenue Commissioner Joe Blount and Governing magazine/Pew Center on the States writer Richard Greene. Blount gave a factual narrative of how Mississippi's tax system developed. Greene advocated a principled approach to state taxation that keeps revenue stable and treats all sectors evenly, with a special caution in treatment of a possibly overtaxed telecommunications sector.
