Cutting grocery tax could spur sales of other items, study says

Published 7:20 pm Tuesday, February 20, 2007

Some Mississippi cities could see an uptick in revenues if lawmakers approve a plan to decrease taxes on groceries and increase taxes on cigarettes, academic researchers say.

The extra cash would be collected because middle- and upper-income people could take the money they save on grocery taxes to buy clothing or other taxable items.

The new spending could generate $18 million a year in state sales tax collections, and cities would receive a portion of that money, says Judy Phillips, a researcher for Mississippi State University’s Stennis Institute of Government.

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Phillips said if the grocery tax is reduced, low-income people could be expected to use the tax savings to buy more groceries, and that would have little effect on state revenues.

Mississippi has the highest grocery sales tax in the nation and the third-lowest cigarette tax.

Two bills have been filed this legislative session to cut the grocery tax in half and increase the cigarette tax to $1 a pack.

A Stennis Institute study provides the statistical analysis that many Mississippi lawmakers say they want in the debate over proposals to reduce taxes on groceries and increase taxes on cigarettes.

One of the big disagreements at the Capitol has been over what kind of impact the “tax swap” would have on municipalities, which receive a portion of the sales taxes collected within their boundaries.

“We’re talking about an increase in tax revenues from the cigarettes that, with the reduction in grocery tax, comes out to be almost a wash. It’s not much of a change,” economics professor Charles Campbell said Monday.

Campbell and Phillips spoke in Jackson at a luncheon sponsored by the institute and the Capitol press corps.

The Stennis Institute study says the grocery tax is “regressive,” meaning that it has a larger impact on low-income people than on middle- or high-income shoppers.

“I’ve seen the argument in the press by a number of politicians in different states that, well, the poor people aren’t really affected (by a grocery tax cut) because they’re all on food stamps,” Campbell said. “And in fact, that’s not true.”

The Stennis Institute study says “only 51 percent of those eligible for the food stamp program actually participated in the program in Mississippi.” People using food stamps do not pay any grocery tax.

One cigarette and grocery tax bill passed the House 91-27 last Thursday and moves to the Senate for more work.

A separate bill awaits consideration in the Senate Finance Committee, and Chairman Tommy Robertson, R-Moss Point, says he’ll bring it up for debate only if he knows there are enough votes to pass it. Wednesday is the deadline for the Finance Committee to act on the Senate bill.

With the House vote, though, the issue remains alive for a while, regardless of what Robertson decides.

Republican Gov. Haley Barbour vetoed two cigarette and grocery tax bills in 2006, and lawmakers were unable to muster the two-thirds majority to override either veto.

This is an election year, and health advocates who want a higher cigarette tax say they hope that will change the dynamics at the Capitol and push one of the bills through with veto-proof margins.

Marty Wiseman, a political scientist who directs the Stennis Institute, said the institute’s goal was to give lawmakers information that could help them set public policy on taxation.

“We did not write the study to take a side or to refute anybody’s position,” Wiseman said.

The bills are Senate Bill 3098 and House Bill 247.