BPF: the tax report contains manufactured figures
As Mississippi lawmakers strive to eliminate personal income tax, they are looking for ways to recoup the resulting reduced income. One possible source is the elimination of various tax deductions, exemptions and credits.
But an analysis from the Bigger Pie Forum (BPF) found that official Revenue Department estimates for these deductions, exemptions, and credits are largely fabricated and should not be relied on by the state legislature.
The tax report contains fabricated figures
Over the past 10 years, and possibly longer, the DOR has simply introduced an arbitrary adjustment for inflation, 2.5% in most cases, to arrive at its annual cost estimate to the budget of the DOR. Most state sales tax exemptions.
Consequently, these amounts have no current basis in reality. One wonders if they ever did.
Of the 46 sales tax exemptions for which DOR released an estimate this year, 37 of them, or 80 percent, were calculated by applying the arbitrary inflation adjustment. Over the past 10 years, 74 percent of its estimates have been calculated the same way, rather than attempting to determine an actual cost.
It appears that an occasional attempt is made to produce an accurate number. For example, the amount of sales tax that would have been collected on drugs if they were taxed was estimated to be around $ 30 million per year until fiscal 2015. In 2016, the estimate was over five. times that amount to $ 162 million. In the years that followed, DOR applied the arbitrary inflation adjustment – exactly 2.5% in some years and 2.0% in others.
These estimates are part of the annual “Tax Expenditure Report” produced by the Office of the State Economist, using data and estimates provided by the DOR. “Tax expenditures” refer to the amount of revenue the state would receive if these exemptions, deductions and tax credits did not exist. This is based on the theory, which is debatable, that not collecting taxes has the same effect as taking money from the public treasury.
The report acknowledges that there are some estimates that should not be relied upon, as “no established database exists to determine these values”. It is not clear why DOR offers baseless estimates for some exemptions, but labels others as “Not Available” due to lack of data. Yet others identified as “insignificant” (although marked as insignificant for years), suddenly had a price tag of $ 5 million – which has since been set on the automatic 2.5% inflation track. .
Income tax exemptions, deductions, and credits may be more reliable than sales tax estimates, although this is uncertain. These estimates are not arbitrarily adjusted like sales tax estimates are. But there are crazy fluctuations in the estimates from year to year that raise questions about their accuracy.
For example, the estimated annual “cost” of the deduction for charitable contributions had been in the order of $ 70 million until it was multiplied by five to reach $ 350 million in 2015, before falling back. the following year to $ 83 million.
Considering the impact of tax deductions, exemptions and credits is a legitimate function of the legislature, and it is quite possible that some of them will be repealed in order to “pay” for part of the elimination of the state income tax.
But to do so responsibly, the legislature must have reasonably accurate information. The tax expenditure report is not a reliable source and the Ministère du Revenu should not present it as such.
– Article credit to the Bigger Pie Forum editorial board –