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Corporate Taxes are Being Eroded by Tax Incentives and Tax Avoidance Measures

April 20, 2012

Filed under: Budget & Tax,Taxes — Tags: , , , — admin @ 8:24 AM

In the final part of our series about tax day, we will explore how corporate tax loopholes and corporate tax incentives have eroded corporate taxes and jeopardize the public services that make our economy strong.

Much of the tax day attention is usually paid to individual income taxes.  However, individuals and corporations alike benefit from our state’s infrastructure, education systems, court systems, and other state services that make Mississippi’s economy strong.  Thus, corporations should also pay taxes maintain those investments.  However, last year PEER found that 8 out of 10 corporations in Mississippi pay no state income tax.  Some of those corporations do not pay income tax because they legitimately have no profit to pay taxes on or they receive credits that have lowered their taxes to zero.   Others are not paying taxes by taking advantage of tax avoidance measures.

Corporate Tax Breaks

Corporate tax breaks are programs that allow corporations to reduce or eliminate their taxes.  These programs are designed to encourage business activity, but their benefits can be offset by reducing state revenue and limiting investment in state services like education and workforce development that are also vital to the economy.

Furthermore, the true benefits of corporate tax incentive programs are unclear.  Public disclosure about the programs is lacking.  In most cases the public does not even know simple details about the incentives such as or how many corporations are receiving the incentives and how much they cost.  More importantly, data are not available on how many jobs are actually created from the programs and the quality of those jobs.

At the very least, MS should publish information on which companies are receiving tax breaks and whether or not the policies are have the intended impact on jobs.

Corporate Tax Loopholes and Tax Avoidance

Another ways corporations avoid paying taxes is by taking advantage of loopholes in the tax code.  Corporations employ tax avoidance measures like shifting income to related corporations in other states.   More details about how corporations do this can be found in this blog post.

Closing loopholes would not only help support our state services, it would help level the playing field for local businesses that don’t have out of state subsidiaries and must pay taxes on their full profit.

Corporations succeed when they are surrounded by an educated workforce and a well-functioning infrastructure – both of which require public investment funded by taxes and remain essential building blocks of a well-functioning economy.

Author: Sara Miller, Senior Policy Analyst

Inequality Hurts Us All—Our Tax System Shouldn’t Make This Worse

April 19, 2012

Filed under: Budget & Tax,Taxes — Tags: , , — admin @ 12:52 PM

Our state is a better place when we all do well.  Unfortunately, our current tax system makes inequality in our state worse by taxing working-poor families deeper into poverty.

Mississippi’s state income tax threshold, the amount at which persons start having to pay income taxes, has fallen below the federal poverty line since 2005 (See Figure 1, below).

Each year, the federal poverty line rises due to increases in the cost of living.  Last year, the federal poverty line rose by $698 from $22,113 to $22,811 for a family of four, while Mississippi’s income tax threshold had no adjustment. Without any adjustment for inflation, more and more individuals living below the federal poverty line will be required to pay state income taxes.


In 2011, a number of states exempted low-income families from state income tax and a many other states offered refunds to low-income working families through Earned Income Tax Credits. 404,394 Mississippians claimed the federal Earned Income Tax Credit (EITC) in 2011 which brought an additional $1.5 billion into our state.¹

A state EITC would reduce the income taxes owed and provide a wage supplement for over 360,000 working families living in or near poverty in Mississippi.  Research has shown that most families use the EITC to pay for necessities, home repairs, maintaining/replacing vehicles needed to commute to work, and obtaining additional education or training to boost their employability and earning power.²

Inequality hurts us all.  Our state tax system shouldn’t make this worse—especially when we have the ability to adjust our tax system to reflect the realities of working families in our state through a state-level Earned Income Tax Credit.

¹http://www.eitc.irs.gov/central/eitcstats/

²Timothy M. Smeeding, Katherin Ross Phillips, and Michael A. O’Connor, The Earned Income Tax Credit:  Expectation, Knowledge, Use, and Economic and Social Mobility. http://ideas.repec.org/p/max/cprwps/13.html

Author: Francinia D. McKeithan, Policy Analyst/ SFAI Policy Fellow

Building a Strong Economy and Creating Jobs Requires Making Investments in Mississippi’s Workforce

April 18, 2012

Filed under: Taxes — Tags: , — admin @ 8:20 AM

As we reflect on Tax Day, this posts lifts up the value of adult education and training programs to all Mississippi’s residents.

Across Mississippi, 49,990 working families live on incomes below the poverty level and a total of 129,730 families are low-income.¹

 

These hardworking families are contributing members to the state’s workforce and regularly face the stress of limited resources while working to cover basic needs.

IMPORTANCE OF WORKFORCE TRAINING
For these families and thousands of other adults, publically funded job training and basic education programs are critical lifelines for advancement into higher paying jobs and the middle class. Fortunately with support of state and federal tax dollars, workforce training is delivered to a broad range of workers from adults unemployed during the recession to employees at hospitals and shipyards.

The skill gains workers make in publically funded training advance industries, create jobs and economically benefit Mississippi communities and families.

ADULT BASIC EDUCATION
In tandem with workforce training, many businesses and working adults benefit substantially from the state’s adult basic education(ABE) system and GED programs. Having adequate resources to support GED and ABE classes builds adult literacy, increases high school equivalency and gives adults more skills to access jobs that support their families. Tax dollars ensure these courses are funded and that more Mississippi adults advance to high school equivalency, a credential vital to advancing in college-level courses and building the competitiveness of the state’s workforce.

Taxes enable Mississippi to invest in higher education, workforce training and adult basic education. Each one of these areas of education is vital to generating a pipeline of highly-skilled workers that strengthen the state’s existing businesses and attract additional development in the state. These public education programs build up a stronger Mississippi economy by bolstering the state’s workers, employers and tax revenue.

As we reflect on Tax Day and the value of public investments across the state, workforce training and adult education programs remind us that the contributions we make in taxes each year have a marked, positive effect on the lives of families, businesses and the state’s job creation.

¹Working Poor Families Project data generated by Population Reference Bureau from the American Community Survey 2012

Author: Sarah Welker, Policy Analyst

What Do Tax Breaks for Millionaires Cost in Mississippi?

April 16, 2012

Filed under: Budget & Tax,Income & Working Families,Taxes — Tags: , — admin @ 11:41 AM

Today, the United States Senate will be voting on the “Buffett Rule.”   The “Buffett Rule” is the principle that the tax system should be reformed to reduce or eliminate situations in which millionaires (households earning $1 million or more annually) pay lower effective tax rates than many middle-income people.

Only around 210,000 taxpayers – a bit over 1 of every 1,000 – would face higher federal taxes if the measure were enacted, according to the Tax Policy Center.

The National Women’s Law Center shared information on how these tax breaks affect the Federal government as shown in the graphic below.

Here are two examples of how these issues play out in our state.    

  • Child Care Assistance— There are currently 12,964 working Mississippians on the waiting list for child care services.  The waiting list occurred primarily in response to the expiration of $31 million in American Recovery and Reinvestment Act funds.  The funds were used to clear the waiting list in October 2009.
  • Home Delivered Meals— The Aging and Adult Services unit served 1,743,698 individual meals and another 358,790 congregate meals in FY11; however another 2,910 individuals remain on the program’s waiting list.

Taxes are important to all Mississippians, not just because they represent a portion of their paychecks, but also because they fund the public structures that provide the foundation for creating jobs and building a strong economy.  Our state’s tax system should be equitable and adequate, taxing all individuals based on their ability to pay and taxing our citizens in such a way that we are able to build and support the structures that we all depend on each day.

Author: Francinia D. McKeithan, Policy Analyst/ SFAI Policy Fellow

MARCH JOBWATCH

April 12, 2012

Filed under: Income & Working Families — Tags: , — admin @ 1:02 PM

The U.S. Bureau of Labor Statistics released Mississippi’s monthly employment data on March 30th.   The release presented a mixed picture of Mississippi’s labor market as the unemployment rate declined markedly, but still registers above national and regional rates.

Positive signs for Mississippi’s job market:

  • Mississippi’s unemployment rate declined by a larger margin than any other state in February. The state’s unemployment rate came in at 9.5%, a decline of 0.5% from January.
  • Mississippi’s unemployment rate is lower than one year ago, down 1.0% since February 2011.
  • Mississippi’s labor force has grown by 5,300 workers since February 2011 as individuals re-enter the workforce and look for employment.
  • Looking back at 2011, Mississippi saw a gain of 6,525 jobs over a 12-month period.

Signs that additional recovery is still needed:

  • Mississippi’s has 69,600 fewer jobs than at the start of the 2007 recession.
  • Mississippi’s unemployment rate was still above the national rate of 8.3% in February.
  • Mississippi’s February unemployment rate registered above neighboring Mid South states (see chart).

 

An article on the Clarion Ledger last weekend focused on industries and occupations experiencing job growth across the state. Jobs in health care, business services and education are all sited as having substantial growth and/or openings. As Mississippi’s job market recovers from the recession, Mississippi can take several steps to prepare low-skill adults for advancement along a career path to higher wages including:

  • Enhance funding for Adult Basic Education and GED courses, so more support staff are available to promote student transitions from a GED into college-level classes.
  • Imbed occupational and vocational skills content into adult basic education and remedial courses at community colleges, so students connect learning in math and reading with potential careers.
  • Provide college credit for learning attained on the job, so adults can progress through degree programs at a faster pace.

For more recommendations for advancing the skills and job opportunities for Mississippi’s working adults see MEPC’s policy brief on sector initiatives here.

Author: Sarah Welker, Policy Analyst

Building Toward Economic Mobility in Mississippi: State Profile

April 10, 2012

Filed under: Income & Working Families — Tags: , , — admin @ 9:09 AM

A recent report released by the Corporation for Enterprise Development (CFED) illustrates Mississippians struggle to obtain financial security post-recession. The 2012 Assets and Opportunity Scorecard assesses the 50 states and the District of Columbia on different outcome and policy measures related to financial security.

Key Findings:

  • 32 % of Mississippi households live in asset poverty
  • 69 % of Mississippi consumers have a subprime credit
  • 36 % of jobs in Mississippi are low-wage jobs
  • 35 % of homeowners in Mississippi are cost burdened
  • 21 % of people in Mississippi are uninsured
  • 20 % of adults in Mississippi have at least a 4-year college degree

What Can Mississippi Do?

Mississippi can create more viable opportunities for people to build their assets for future investments through a balanced approach. This includes, but is not limited to, enacting tax credits for working families, enhancing protections from short-term predatory lending, funding microenterprise development, providing first-time homebuyer assistance, expanding income eligibility for state programs, and providing access to quality K-12 education.

Over the next several months, MEPC will be sharing information about the Scorecard and promoting policy options for building assets among low-wealth families.

Author: Jessica Shappley, Policy Analyst
Source: CFED, Assets and Opportunity Scorecard, 2012.

 

Mississippi’s State Income Tax has High Impact on Low Income Families

April 4, 2012

Filed under: Budget & Tax — Tags: , , , , , , — admin @ 1:46 PM

With the tax filing deadline of April 17th approaching, many Mississippians have already filed their state and federal taxes or will soon be doing so.  A recently updated report from the Center on Budget and Policy Priorities, The Impact of State Income Taxes on Low-Income Families in 2011, highlights three facts that you may not know about Mississippi’s State Income Tax.

Three things you may not know about Mississippi’s Income Tax:

1. Mississippi is one of 10 states in which a family of three, with an employed person working full-time at the minimum wage, actually owed taxes in 2011.

2. Our state currently taxes the income of working Mississippians more heavily than in the early 2000’s. The income tax threshold (the point below which a family owes no income tax) for families of four has fallen compared to the federal poverty line. Without adjustment, the gap between the state’s income tax threshold and the federal poverty line will increase annually (See Figure 1) and there will be more individualsliving below the federal poverty line that will be required to pay state income taxes.

3. In Mississippi, the income tax on families of four with poverty-level incomes has risen faster than inflation from $0 in 1994 to $103 in 2011.

Simply getting rid of the income tax is not an option. Instead, the solution is to tailor the tax codes to reflect the realities of working families. In 2011, a number of states exempted poor and near-poor families from state income tax and a many other states offered refunds to low-income working families through Earned Income Tax Credits.  Another way our state can reflect the reality of working families is by updating the state’s tax structure.  For instance, a new rate of 6% on taxable income over $45,000 and 7.5% on income over $100,000 would bring in an estimated $117 million through the personal income tax.

Taxes are essential to our state.  They provide funding for education, health care, and public safety— systems we all rely upon daily. With a balanced approach, that includes both spending cuts and new revenues, we will be better equipped to make Mississippi a stronger state for the generations to come.

Author: Francinia D. McKeithan, Policy Analyst/SFAI Policy Fellow

Updated: HB1396 Takes Advantage of Mississippi’s Working Families

April 2, 2012

Filed under: Budget & Tax — Tags: , , , — admin @ 9:22 AM

This is updated information to the March 30th post on HB 1396

HB1396 represents the types of policies that keep Mississippi and its families from moving ahead and should not be supported. HB1396 significantly drives up the cost of small loans made by small loan companies which are used by working families.

Example:
Compared to the more expensive $1,500 loan under the current statute, this act will increase the current allowable costs on (interest and fees) by $884.88.

***HB1396 changes the fee structure on installment loans making them more expensive.***

On the more expensive $1,500 loan with a term of 24 months, the cost of the loan without credit life insurance is $2,954.88 under the existing statute.  HB1396 will increase the allowable cost by $884.88 (see chart below).


On a monthly basis, HB1396 will increase the costs of making loan payments on the more expensive $1,500 loan by $36.87. For families already in the financial position to need this product, $37 could be the difference between having enough money for gas to go to work and not making it.

One rationale for pursuing this bill has been that the small loan companies have been affected by the recession.  However, in 2010, there were 517 small loan companies licensed in the state of Mississippi with nearly $795 million in loans outstanding.  Clearly, someone is able to make these loans.  The rationale also ignores the fact that Mississippi’s working families have been hurting as well – and this bill will cause further harm.

For more information on HB 1396, see our Fact Sheet.

Author: Ed Sivak, MEPC Director

State General Fund Revenue Estimate: FY 2012 Revised and FY 2013

March 27, 2012

Filed under: Budget & Tax — Tags: , , , , , — admin @ 9:44 AM

Last Tuesday, State Economist Darrin Webb shared the State’s General Fund Revenue Estimate for FY 2012 (revised) and FY 2013 with the Legislature.  The table below includes a breakdown of these revenue estimates.  The total revised General Fund Revenue Estimate for FY 2012 is approximately $4.8 Billion and $4,761 Billion for FY 2013. The estimate stayed roughly the same.

Since the last revenue update, the economy has been growing.  However, this growth is at a slow pace and remains vulnerable to shock.  Additionally, Dr. Webb stressed that even if the nation does not enter a recession, there is still a chance that Mississippi will—the state has experienced four consecutive years of declining employment.

While it is encouraging to see that revenues are projected to exceed original estimates, there are ways that our state can take a more balanced approach. Opportunities for revenue growth include: Updating the state’s sales tax base to include more services, funding and implementing the hiring and retention of auditors and collectors for the Department of Revenue, and closing corporate loopholes by supporting HB970.

A copy of the full document can be found here

Author: Francinia D. McKeithan, Policy Analyst/ SFAI Policy Fellow

 

Cuts to Education Will Have Long Term Effects on Mississippi

March 21, 2012

Filed under: Education,Income & Working Families — Tags: , , , , — admin @ 9:00 AM

A publication from the Center on Budget and Policy Priorities, entitled, “New School Year Brings Steep Cuts in Funding for Schools,” illustrates the continuing effects of budget cuts on state-funded services like education.  On a national level, many elementary and high schools are receiving less state funding than last year and are now funded at below pre-recession levels.

Key findings from this study:

  • State-level K-12 cuts have large consequences for local school districts as they have little ability to replace lost state aid on their own.  Cuts at the state-level mean that local school districts have to either scale back the educational services they provide, raise more revenue, or both.
  • Cuts in school funding undermine education reform and hinder the ability of school districts to deliver high quality education, further resulting in long term negative consequences for the nation’s economic competitiveness.

How does Mississippi Compare?

Mississippi falls on the lower end of the spectrum when looking at cuts across the states by the percentage cut with a 12.2% percent reduction in funding per student (see Figure 1).  Continuing cuts to Mississippi’s education program will diminish the quality of education of elementary and high schools.  At a time when the nation is trying to produce workers with the skills needed to master technologies in an ever-changing global economy, cuts in education funding threaten essential building blocks for future prosperity.

What this means for Mississippi:

In the figure above, many states have managed to increase their funding for education programs.  This growth in spending reflects policymaker’s prioritization of education funding despite fiscal stress.  While Mississippi is not as affluent as other states, there are still methods that our state can use to gain a greater capacity to invest in programs such as education.  These methods include increasing the sales tax base, updating personal income and corporate taxes, and reducing certain tax expenditures.¹Without a balanced budgeting approach that includes raising revenues, Mississippi will be less competitive when prosperity returns.

Author: Francinia D. McKeithan, Policy Analyst/ SFAI Policy Fellow

¹Sara Miller, Revenue Options for Mississippi’s Fiscal Crisis, Updated August 2, 2011

 

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