The state of Mississippi may be too dependent on its seven percent sales tax for revenue; according a recent report. That reliance may be to be volatile due to an ever-widening income gap.
Financial giant Standard and Poor's released a report yesterday that looks into how state's collect tax revenue and its effect on economic growth. According to the report, Mississippi ranks in the top ten states that relies most heavily on sales taxes. The report also suggested that a growing divide in individual incomes is causing the state's revenues to stagnate. Millsaps College Professor of Finance Bill Brister explains.
"Lower income people, middle income people tend to spend almost all that they make," says Brister. "If their incomes are going down then sales tax revenues are going down. The top 20 percent whose income are going up, they don't tend to increase their purchases. They tend to save more and invest more rather than spend more on items in which the state will gather sales tax."
Brister went on to suggest that the state's dependence on sales taxes could be potentially volatile for its overall revenue stream. He argues that an increase in income taxes could be theoretically more stable. However, University of Mississippi Economics Professor Tom Garret says the state's sales tax base could prove to be more stable if it were actually expanded.
"Right now there are a lot of service that aren't taxed," Garret says. "The idea would be to expand the base. That is by law, extend the list of items that are subject to a sales tax. Unless they change the base on which the sales taxes are levied they're just going to see sales tax revenue, as a percent of their total revenue, to just continue to decline over time."
Despite the report, the state's tax code is not likely to change anytime soon. Senate Finance Committee Chair Joey Fillingane of Sumrall believes the best thing to do is keep the state's tax code as business friendly as possible.
"All of our thrusts have been to try to get additional job-creators to come to our state to create jobs," says Fillingane. "Obliviously, we would much prefer to grow our revenue by growing the number of jobs we have, and therefore growing the number of people who are paying into the income tax. They'll buy things too when they have more money.
Fillingane went on to say that the state is currently ahead of its own revenue projection by about eight to ten million dollars.