At the center of the effort by Gov. Tate Reeves and his House allies to revamp Mississippi’s tax code is the question of whether it is fairer to get the revenue to run government from what people earn or what they spend.
Reeves has long advocated for eliminating the personal income tax, and the House has agreed. The House mostly differs from Reeves in how long it should take to phase out the tax, as the House is inclined to be more cautious than the Governor.
But for the income tax to be eliminated, something else has to go up, and what Jason White wants to see go up is the sales tax on most everything but groceries. He proposes reducing the state sales tax on groceries over time to 2.5%, but then give cities and counties the option to add a 1.5% local sales tax on groceries and other goods and services — an option that legislators historically have been loathe to give except in specially targeted cases, such as a tourism tax on what hotels and restaurants charge their customers. He would also add a 5% sales tax on fuel that would be used to bolster the funding of the state’s transportation system.
Should all of this occur, state government would significantly alter the balance of its revenue streams. In the past, income taxes and sales taxes have provided roughly an equal share. Under these changes, government would be funded more by sales tax and less by income tax.
So who would be the winners and losers?
Overall, the burden of taxation would be reduced on those who are better off financially and shifted toward those who are not. Sales tax always hits disproportionately harder on those at the lower end of the economic ladder, since they spend a larger share of their discretionary income on taxable purchases than do those of higher income.
The case for higher consumption taxes has always been the perception that this is the only way to get the poor to help fund government, since they may not make enough to pay income taxes. But even if that is true, shifting to a consumption-heavy taxation system runs counter to the idea of progressive taxation, which says that those who can afford taxes the most should pay the most. Or to borrow from a line of Scripture, “To whom much is given much is expected.”
The Mississippi Senate is more inclined to keep a balance between sales and income taxes, while lowering them both. That would be the fairer idea, presuming the state can afford these cuts on top of the ones that are still being phased in.
