In the final installment in our series on Tax Expenditures we will look at how Mississippi’s Annual Tax Expenditure Report could be enhanced. In Part 1, we looked at some basics about tax expenditures, and in Part 2 we looked at how much state revenue is not realized as a result of tax expenditures
By law, Mississippi publishes a Tax Expenditure Report annually. It is prepared by the Institutions of Higher Learning Center for Policy Research and Planning. Mississippi’s tax expenditure report provides a list of tax expenditures by type and a detailed description of the tax expenditure and, in some cases, its purpose.
A recent report from the Center on Budget and Policy Priorities evaluated each state’s tax expenditure report and found that Mississippi’s report does some things w ell and that it could be enhanced by including some additional information. One area in which Mississippi’s report excels is that it attempts to capture expenditures from all of the major tax areas. Some of the areas that could benefit from the enhancements are highlighted below.
Forward estimates
Each year’s report only provides cost estimates for the current fiscal year. Estimates for future years would give lawmakers an idea of how tax expenditures, like the income tax exemption for dependents, will affect the budget in future years.
Data on services exempt from the sales tax
One set of tax expenditures that is not included in the state’s report is the exclusion of many services from the sales tax. Our sales tax law is structured so that all goods are subject to the tax unless exempt, and services are only subject to the sale tax if specifically listed. Thus, the exclusion of many services from the sales tax is not technically considered a tax expenditure for purposes of the Tax Expenditure Report. However, the exclusion of many services from the sales tax, like pet grooming and tanning, represents a loss of revenue to the state, especially as the economy largely shifts from goods to services.
The number and description of recipients and other evaluations of the tax expenditures
Inclusion of data on the number of persons and businesses that benefit from a tax expenditure and how they benefit would go a long way toward helping lawmakers and the public evaluate tax expenditures. For example, for the Jobs Tax Credit, the tax expenditure report provides an estimate of the costs ($5 million for FY 2011), but does not include the number of jobs, the types of jobs created by the credit or the number of businesses assisted. Such data are important for lawmakers and the public to see whether the tax expenditure is accomplishing the goal it was created to achieve.
Distribution of tax expenditure benefits by income level
In addition to providing information on the number of persons who benefit from a tax expenditure, some states are also able to estimate how the benefits of a tax expenditure are distributed by income group. Such analysis allows lawmakers and the public evaluate whether the tax expenditure is achieving the intended results for each income group. For example, a distributional analysis would be able to show not only how much the state’s sales tax exemption for residential utilities costs in total, but how much the exemption is benefiting persons at each income level.
Cost Estimates for More Tax Expenditures
The state’s tax expenditure report lists 27 tax expenditures for which cost estimate data is not available. While some of these expenditures are complicated and difficult to estimate, others should be available from individual and corporate tax returns. The state should not have tax expenditures for which cost data is not available to lawmakers and the public. These areas should be addressed through the planned upgrades to the Department of Revenue’s Integrated Tax Management System.
More data on tax expenditures, including an evaluation of their effectiveness and who benefits from the programs, should be included in the state’s Tax Expenditure Report. Also, laws including tax expenditures should be subject to periodic renewal or repeal to encourage such substantive review by lawmakers. These practices would make the process of state budgeting more efficient, effective and ultimately more accountable to the people of Mississippi.
Author: Sara Miller, Senior Policy Analyst
