Whether or not this legislation ultimately dies with the Governor's veto or a compromise is reached, the debate over the food tax swap has energized the public debate over the goals Mississippi's tax system ought to achieve. Ideas of "tax fairness" and "adequacy" are being bandied about regularly-- as they should be. So the public spat over the food tax gives all Mississippians an important opportunity to study and explore other ways to improve Mississippi's tax structure.
The fundamental question Mississippi lawmakers should be asking is this: how can we make the tax system less unfair while providing a reliable, progressive way of paying for any tax cuts? Cutting the sales tax on food is a progressive move-- but an expensive one. And Governor Barbour has repeatedly expressed his (understandable) concern about the ability of the cigarette tax to reliably replace lost food tax revenues.
The common-sense reform options available to Mississippi lawmakers include:
- Including more personal services in the sales tax base could help pay for a cut in the grocery tax. Mississippians' spending on services (such as haircuts and car repairs) is growing much faster than their spending on traditional good such as books and groceries. From the perspective of both fairness and adequacy, taxing services makes a lot of sense. For more about the expansion of the sales tax base to include services, check out ITEP's Policy Brief called "Should Sales Tax Apply to Services?"
- A second option available to lawmakers is to increase revenue through the addition of a new top income tax rate comparable to neighboring states, which could be offset through an increase in the state's personal exemption.
- Alternately lawmakers could use the revenue from a new top tax bracket to pay for the cost of a new targeted low income credit. For more about the merits of targeted low-income credits click here.
These are just some examples of the revenue-neutral "tax swap" options available to Mississippi policymakers. Since serious discussions about Mississippi's tax structure are underway, there's a unique opportunity to broaden the debate and focus on reforms that would modernize the state's tax structure and make it more equitable.