Shift Tax Burden as Recommended or Delay Tax Cuts

The Tax Foundation expert legislative leaders brought in last fall to advise them on tax reform recommended a shift in the state’s tax burden – away from corporate and individual income taxes to user-based taxes.

The key word is “shift.”

User-based taxes – gas taxes, sales taxes, use taxes, etc. – are already on the books in Mississippi. The tax expert called for these taxes to be expanded and corporate and income taxes reduced.

The Legislature has begun the shift away from corporate and individual income taxes with cuts that will begin phasing in next year.

What has not happened, yet, is any shift of taxes on to users.

And, thanks to, eh, subdued leadership on this issue, the Legislature may have missed the window to get it done.

While both Lt. Gov. Tate Reeves and House Speaker Philip Gunn favored the tax burden shift, explaining that meant some taxes would go up as others went down, they didn’t take the bull by the horns and sell it to the rank and file.

It appears the many Republican legislators who promised voters they will never ever raise taxes can’t distinguish a tax shift from a tax hike. Nor have anti-tax groups bought into the notion that a tax burden shift is a good thing. They like the down but fight the up.

A bill, modeled on an Alabama law, would allow the state to collect use taxes on Internet sales and, thereby, increase user-based tax revenue. The Mississippi Tea Party attacked it as a tax increase rather than a shift.

The tax expert told lawmakers they should expand gas taxes enough to cover road and bridge repair costs. That is the essence of user-based taxes – road and bridge users should pay to keep them in good shape. The Mississippi chapter of Americans for Prosperity and the Mississippi Tea Party both attacked this as a tax increase rather than a shift. Subdued legislative leaders abandoned it again this year.

The Speaker, who praised the tax expert’s recommendations, appears to have abandoned gas tax expansion altogether. Instead, he now proposes earmarking Internet taxes for road and bridge repairs.

Given the state’s deteriorating revenues, taxes on Internet sales should go to the general fund, like other use taxes, to offset both existing budget shortfalls and pending reductions from corporate and income tax cuts. That’s if the bill can even get passed.

The most palatable way to handle the gas tax is to phase it in over multiple years just like the tax cuts, e.g. a two-cent per gallon per year increase phased in over six years.

According to the tax expert, shifting the tax burden away from corporate and income taxes is pro-growth and will improve the state’s business tax climate. Likewise, investing in transportation infrastructure is pro-growth because businesses need useable roads and bridges to transport products.

However, there will be no tax burden shift unless Reeves and Gunn summon the gumption to make it happen. That lacking, they should delay tax cuts until state revenues are in better shape.

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