Mississippi needs tax reform to stay competitive

By Steve Wilson | Mississippi Watchdog

If economic competitiveness among the states is a race, Mississippi is dropping back in the pack and in danger of falling off the lead lap.

Mississippi needs tax reform to get ahead.

The Rich States, Poor States: American Legislative Exchange Council-Laffer State Economic State Competitiveness Index report was released this week.

Mississippi dropped four spots — from 10th to 14th.

While the good news is Mississippi is one of the three Southeastern states in the top 15 — along with North Carolina and Georgia — the bad news is other states, such as North Carolina and Indiana, rocketed up the rankings, which measure trends on economic growth using several measures including tax burden, labor policies and regulatory climates.

According to the index, both basketball-crazed states had a slam dunk of a legislative session in 2013.

North Carolina’s ascent was due to the bold tax reforms that went into effect this year. The personal income tax rate was reduced from 7.75 percent to 5.8 percent, transforming it from a progressive system to a flat tax. The Legislature also reduced the state’s corporate income tax rate — from 6.9 percent to 6 percent — and killed the state’s death tax.

Indiana repealed its state inheritance tax, reformed its business personal property tax and reduced its corporate income tax rate from 8 percent to 7.5 percent.

There were no such bold moves in Mississippi.

This year’s legislative session was marked by infighting between the House and Senate and no sweeping reforms. The only tax bills that passed were a needed reform for the tax assessment and appeals process and a sales tax holiday on guns and hunting supplies.

It was like the Legislature was playing the University of North Carolina’s four corners, or “stall ball,” offense designed to run out the clock rather than score. Never mind Republicans run both chambers of the Mississippi Legislature — and there’s a Republican governor, Phil Bryant.

Mississippi’s tax system is in dire need of reform, and it could go a long way to improving mediocre economic numbers. According to the Rich States, Poor States report, the Magnolia State’s economic performance was 39th, as its non-farm employment fell 1.1 percent and 32,013 residents left the state from 2003-12.

While the top marginal rate for the state’s progressive income tax is the 17th lowest and the corporate income tax rate ranks ninth lowest — both at 5 percent — the state’s sales tax burden is another story.

The sales tax burden per $1,000 of personal income is $31.78, 41st in the nation. According to the Tax Foundation, the Magnolia State’s sales tax rate of 7 percent is tied for second-highest. Mississippi is only one of two states — Alabama is the other — to tax food at the full rate. Thirty-one states exempt food completely from their state sales tax while 17 tax it at a lower rate.

Since Mississippi is so dependent on sales tax revenue — 38.3 percent of the state’s tax revenue — it exposes the state to the whims of economic fortune. When there’s a downturn, the money dries up.

The prescription is simple — tax reform. End the practice of massive tax incentives to lure businesses. Cut rates across the board on income and sales taxes. Make the income tax one flat rate, applicable to all. End the sales tax on food.

That way you improve the overall business environment and not just do a few costly favors for the well-connected. A rising tide floats all boats, including those that can’t afford lobbyists.

Contact Steve Wilson at swilson@watchdog.org

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