Economist: Phasing in Tax Changes Better Than Sudden Shift

JACKSON, Miss. (AP) — As Mississippi lawmakers evaluate the state tax system, they should look at Indiana, North Carolina and Washington, D.C., as success stories, an economist said Thursday.

Nicole Kaeding of the Tax Foundation said those two states and the city phased in changes, including cuts in corporate and personal income taxes.

Kaeding told more than a dozen Mississippi lawmakers and a roomful of lobbyists at the Capitol that Kansas is “an example of what not to do in tax reform.”

“They basically just slashed revenue in the state,” Kaeding said, and that left Kansas officials with little idea of how much revenue the state will collect from year to year.

The Washington-based foundation analyzes federal, state and local taxes. Although it bills itself as nonpartisan, the Tax Foundation has been criticized by liberal groups such as the Center on Budget and Policy Priorities, which said in 2013 that the foundation “mischaracterizes or exaggerates” the findings of studies on state and local taxes.

Kaeding didn’t make policy suggestions, but she pointed out that Mississippi does not tax some goods, such as prescription drugs, or some services such as getting a dog groomed or hiring an attorney.

During the spring, the Republican-led Legislature voted to phase out Mississippi’s $260-million-a-year corporate franchise tax and to cut $145 million in income taxes, raising the threshold for paying state income taxes to $10,000. Those reductions begin in 2018. Lawmakers also voted to lower self-employment taxes, cutting $10.2 million over three years beginning in 2017.

Mississippi revenues have fallen short of expectations the past several months. Republican Gov. Phil Bryant made budget cuts during the year that ended June 30, and many Democratic legislators have said tax cuts are a bad idea.

House Speaker Philip Gunn and Lt. Gov. Tate Reeves, however, have defended the tax cuts and they appointed groups of legislators to examine state taxes and spending.

Gunn, R-Clinton, said Thursday that Kaeding’s presentation bolsters the case for the direction the Legislature is going.

“So much of the conversation has been ‘corporate tax breaks result in bad revenue situations,’ and I just don’t think that’s what she said,” Gunn said. “In fact, it helps to spur growth, and that’s where we’re headed.”

Republican Reeves said Kaeding offered ideas about what an ideal tax code would contain if a state could start with a blank slate.

“One of the things that she seemed to indicate was that having a tax code that relies more heavily on user-based fees and less heavily on income taxes may make sense long-term,” Reeves said.

One example of a user fee is a gasoline tax that helps pay for highway construction.


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