Sales tax hike on the horizon?

By By Terry Cassreino / assistant managing editor
August 18, 2002
With Mississippi's economy limping along at an unremarkable pace and state agencies still feeling the wrath of an economic recession, taxes could become a top issue of the 2003 Legislature.
If not, then a tax increase could play a major role in next year's statewide elections. And the most likely target: an increase in the state tax on the sale of food, clothing and other essentials.
Lawmakers almost considered a tax increase during the 2002 Legislature as they struggled to balance the state budget. House and Senate leaders, though, ended talk as quickly as it began.
Things could be a different next year, especially if the state economy continues to grow abysmally.
And that leads to an even bigger issue that the governor, lieutenant governor and legislative leaders have avoided for years  whether to revamp Mississippi's tax structure and stop relying as much on the sales tax to fund government.
Legislative and statewide leaders first broached the subject of tax reform in the early 1990s at about the same time Mississippi was caught in another recession that forced then-Gov. Ray Mabus to slash state agency budgets.
But instead, lawmakers took the easy road and raised the state sales tax from 6 cents to 7 cents on the dollar. They didn't touch the state's income tax rate and they left thousands of dollars in sales tax exemptions intact.
Lawmakers argued then that they needed a quick fix, a reliable source of cash to help public schools that had suffered greatly at the hands of budget cuts from Mabus and his successor, Kirk Fordice.
Lawmakers were right in one respect sales tax revenues have been more than a quick fix. Today, sales taxes account for more than half of the state's annual tax receipts and about a quarter of all revenues that fund the overall budget.
Consider this: For the fiscal year that ended June 30, 2001, Mississippi collected $2.3 billion in sales taxes. That money made up 52 percent of the state's $4.5 billion in annual tax receipts and 25 percent of the $9.3 billion in total government revenue.
At the same time, Mississippi's income tax a progressive tax based on a person's ability to pay generated $1 billion. That money made up 23 percent of the state's tax receipts and 11 percent of the total government revenue.
Because of that, lawmakers usually strike for the sales tax even though many financial experts consider it the most unfair of all possible taxes. A sales tax is a regressive tax that hits everyone the same regardless of their income level.
For example, the sales tax is a bigger financial hit for a family in the low-to-middle income bracket than it is for family in the upper income bracket. And people who don't earn enough to pay income taxes still must pay sales taxes.
Yet legislators and statewide officials have constantly eyed the sales tax whenever they find themselves in a financial bind. They brush aside all criticism, saying the tax is the best because everyone pays their way.
In the process, they quickly eliminate the even bigger issue of revamping the entire tax structure, one that likely won't surface during the 2003 Legislature or next year's statewide election.
And while conventional wisdom says lawmakers won't pass a tax increase in an election year, that may not necessarily be true. The last sales tax increase came in 1992, just before legislative elections that fall.