JACKSON - That dreaded "T" word. Taxes. Nobody running for office in Mississippi this year wants to hear the word.
Especially neither Ronnie Musgrove nor Haley Barbour, one of whom will head the next state administration. One of them will have to face the fiscal train wreck the state has dodged for three years.
Anyone familiar with the patchwork, barrel-scraping, budget-cutting, one-time money that state lawmakers have stitched together to "balance" the state budget since 2001 knows showdown time on taxes has arrived.
Either substantial new tax revenue must be put into the state's fiscal stream or critical state services will be crippled. Even public education, health care and Medicaid - all of which require higher incremental increases - could be on the chopping block.
A grim alternative would be for lawmakers and the next administration to wipe out the $4 billion health care trust fund created with the 1998 tobacco lawsuit settlement and throw it into the state general fund.
As much as Mississippians dislike paying more taxes, most would oppose raiding the tobacco trust fund.
Although Mississippi politicians are being silent on the subject, the times cry out for a public discussion of where and how additional tax revenue could derived.
Under a W. K. Kellogg Foundation grant, the John C. Stennis Institute of Government at Mississippi State University recently produced a comprehensive study providing an overview of the state's budget dilemma and offering some revenue-producing remedies.
It got little attention when it came out in June, but the Stennis Institute study provides an excellent framework for the state's political community to focus on the existing tax system and how to meet projected revenue needs.
Not surprisingly, the study, conducted by MSU economists Charles A. Campbell and M. Kathleen Thomas, found the current state tax system has a "highly regressive" sales tax and a "very mildly progressive" personal income tax.
The need for additional revenue, Campbell and Thomas write, "comes not just from depressed economic conditions, but from devolution of federal programs to the state and dramatic increases in health care and similar costs."
In a search for sources of additional tax revenue, the Stennis Institute makes the case that the sales tax is not the place to go because it already places a disproportionate burden on low-income families.
Meantime, Drs. Campbell and Thomas, who call the state's personal income tax "among the flattest in the nation," make the case that the income tax is the logical area to find substantial additional revenue.
The state's 7 percent sales tax, with no exemption for food, takes 11.6 percent of a Mississippi family's income earning an average of $15,100, but only 7.6 percent from a family with an average income of $131,000, the report shows.
At the same time, the state personal income tax takes only 3 percent of a family's income averaging $13l,000.
In a search for additional revenue, the study recommends that the income tax be made more progressive by raising the top tax bracket from 5 to 6 percent on adjusted income (after deductions) over $15,000.
A new 6 percent bracket, the Stennis study says, would produce a minimum of $248 million in additional revenue.
Until 1962 Mississippi had a 6 percent top income tax bracket, before Ross Barnett got the Legislature to whack the top rate down to 3 percent. It put such a drain on state revenues that lawmakers in 1968 had to restore a 5 percent top bracket and initiated withholding state income taxes from workers' payrolls.
Significantly, Republican Gov. Bob Riley of Alabama has pushed through that state's Legislature a $l.2 billion tax hike package, which is geared to raising the top income tax bracket to 6 percent on upper incomes.
Under Alabama's obscure system, the tax package must now be approved in a Sept. 9 statewide referendum. It has generated an emotionally charged campaign, whose outcome will be closely watched across the South.
Mississippi's present 5 percent top income tax rate is lower than than the 7 percent top bracket in Arkansas and South Carolina, and lower than the 6 percent top rate in Louisiana and Georgia.
Considering that Georgia in the last decade or two has far outstripped the rest of the South, and certainly Mississippi, in industrial and business development, obviously a 6 percent income tax rate hasn't been a detriment.
Mississippi uses the same rate on corporate income as it does for individuals, while almost every other Southern state levies a separate, higher rate for corporate income. Louisiana, for instance, levies an 8 percent tax on corporate income $200,000 or over.
While Tennessee has resisted levying an individual income tax (while loading up its sales tax and consumer taxes), the Volunteer State does have a 6 percent tax rate on corporate income, which evidently hasn't kept it from landing several auto manufacturing plants over the last few years.
Any hint around the Legislature of upwardly adjusting the state's low income tax rates would bring out the heavy guns of the Mississippi Manufacturers Association and its political arm, BIPEC (Business and Industry Political Education Committee), to shoot it down.
No doubt, the powerful business lobby would contend that any hike in the income tax would hurt economic development. However, the Stennis Institute study disagrees.
"A large body of economic literature exists to refute this assertion (an adverse impact on development) and suggests that a state's business (tax) structure has little, if any impact on economic development," Drs. Campbell and Thomas wrote.
"Increasingly, economists specializing in economic development are finding the most important factors influencing location of firms … is the quality of life in a local community," they add.
Improving the quality of life however, they point out, "requires more revenue, not less taxes."
There'll be a hot time in the old town - your state capital - when, and if, the next administration and Legislature come down to the lick-log and face up to the tax reality.
