Having set in motion the gradual elimination of the state’s personal income tax, the Mississippi Legislature — or at least one chamber of it — is now thinking about ways to reduce or shift local taxes.
The House Select Committee on Property Tax has just begun meeting, so there are no concrete proposals yet for lawmakers and the public to consider. As House leaders, though, have already acknowledged, if the main source of revenue for counties, cities and school districts is restricted by legislative fiat, those entities will either have to reduce their spending (and probably services) or the Legislature will have to devise a mechanism to replace the revenue that is lost.
Most local tax revenue comes from assessing property — houses, land, businesses and vehicles. Cities receive a cut of sales tax money collected within their boundaries, but counties and school districts have to rely predominantly on property taxes for their operations. That leaves property owners grousing about the burden. For decades, expensive car tags have been the primary reason for complaints, but more recently, owners of farmland have claimed that the steady rise in their property taxes is making it even harder to make a profit in agriculture.
Three decades ago, the Legislature tried to address the high cost of car tags by creating the Legislative Tag Credit. That reduces the cost of tags by some 30% to 50%, depending on the value and age of the vehicle, with the state making up the difference to the local taxing authorities.
Despite the credit, Mississippi car owners still look enviously at states with a flat tag cost of $100 to $150, or wonder why, within Mississippi itself, the cost of a tag can vary by hundreds of dollars depending on the county where the owner lives.
Is there a better way than property taxes to fund local schools and government? Some think so. Instead of taxing income or wealth, they would rather tax consumption via sales taxes. Cities in Mississippi have been lobbying for years for this authority, although they would like to have local sales taxes as a supplement to property taxes, not instead of them.
The problem with a tax system heavily weighted toward consumption is that the sales tax is one of the most regressive forms of taxation. It falls hardest on those with the least means, since they spend a disproportionate share of their income on goods and services that are taxable. Furthermore, an aggressive sales tax policy would run counter to another initiative of the Legislature, which just last year reduced the state sales tax on groceries from 7% to 5%.
Politically and practically, it’s more likely that if the Legislature wants local schools and governments to lighten up on the taxes they charge to their residents, it will have to replace those revenue reductions with state money or pick up more of the costs of local government.
With an accumulated surplus of almost $3 billion and revenues still coming in above estimates, the state would appear to be in a financial position today to adopt either or both of those approaches. Doing so for the long term, though, is another matter.
Mississippi will soon feel the impact from the federal government shifting more of the costs of health and social welfare programs to the states. Plus, based purely on economic history, the nation is about due for a recession. When an economic downturn does come, the Legislature will learn whether it went too far with the aggressive tax cuts it’s already enacted.
Mississippi might want to weather that storm before possibly adding more fuel to it by revamping the property tax system.
